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529 accounts

Q&A: “Superfunding” a 529 account requires filing gift tax returns

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Dear Liz: You wrote that people could contribute up to five times the annual gift tax exclusion to a 529 college savings plan without having to file a gift tax return. People can contribute that much without the gift reducing their lifetime gift and estate tax exemption amounts, but they must file annual gift tax returns to report the gift.

Answer: To recap, few people will ever have to pay gift taxes, but gifts over the annual exclusion amount (which is $19,000 in 2026) usually require filing a gift tax return. Gift taxes aren’t owed until the amounts in excess of the annual exclusion total more than the giver’s lifetime gift and estate tax exemption amount (which in 2026 is $15 million).

Generous givers can “superfund” a 529 college savings plan by contributing up to five years’ worth of annual exemption amounts at once. In 2026, that would be $95,000. To keep the gift from counting against your lifetime limit, however, you must file gift tax returns annually to indicate the gift is to be spread over multiple years.

It’s also important to know that any other gifts you make to the same beneficiary during the five-year period will reduce the allowance for 529 gifting. And if the giver dies during the five-year period, some of the gift will be added back into their estate.

There are other rules that apply to superfunding a 529, so anyone considering this option should discuss their situation with a tax pro and likely will want to consult an estate planning attorney as well.

Q&A: How do you set up a savings account for a grandchild who lives overseas?

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Dear Liz: My son lives overseas. He just became a father. He plans to apply for U.S. citizenship for his dependent as an American born abroad. We would like to help save for our new granddaughter’s future. There are 529 accounts here.

Can he set up an account like that if he gets a Social Security number? Are there other options besides a 529 account for children born abroad?

Answer: If your son is a U.S. citizen and the child has a Social Security number or Individual Taxpayer Identification Number (ITIN), then he can open and contribute to a 529 plan benefiting the child.

So can you, and it may be even more beneficial for you to do so. Grandparent-owned 529 accounts, and distributions from those accounts, aren’t counted in federal financial aid calculations.

There are other options for saving for college, including regular savings or investment accounts, but 529s allow money to grow tax-deferred, and withdrawals are tax-free when used for qualifying educational expenses. That’s a significant advantage.

The money can be used at any school eligible to participate in a student aid program administered by the U.S. Department of Education, which includes the vast majority of U.S. colleges and many abroad. In addition, up to $10,000 annually can be used to pay tuition at elementary or secondary public, private or religious schools. Any unused money can be transferred to another family member. Plus, starting in 2024, up to $35,000 can be used to fund a Roth IRA.

Q&A: Using 529 accounts on groceries

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Dear Liz: You said 529 accounts could not be used for groceries. I searched on the internet and found that students can use 529 money to purchase meals off campus and buy groceries. Which is correct?

Answer: The original letter writer’s child lived on campus, so the amount the family can withdraw tax free from the 529 account is limited to what they spent on a campus meal plan. Grocery runs and restaurant meals aren’t covered.

Once the child moves off campus, the family can use the college’s official “cost of attendance” figures to determine the maximum they can withdraw tax free to pay for food. The child should keep all receipts as proof to back up the withdrawal.

Please be careful about assuming that the results of any internet search are reliable, especially if artificial intelligence is involved in creating — or inventing — the answer. Tax law can be particularly tricky to interpret, which is why I rely on tax experts such as Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, who helped with the original answer.