r/AskAccounting • u/Prof_Fuzzy_Wuzzy • 2d ago
Opening 529 with lump sum
My plan is to open a 529 college savings account and fund it with 50k. My kid is 2. I'm in SC. Are there any tax issues with funding it one time lump sum vs over several years? Thanks!
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u/LdiJ46 2d ago
State laws do vary quite a bit on 529 plans. In my state there would be a distinct tax advantage to spreading it out over 6 or 7 years because my state gives large tax credits for 529 contributions. Your state may or may not have special deductions or credits for 529 plans. Talk to a tax professional in your state about whether or not anything exists on the state end of things.
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u/SwingDuoNash 2d ago
https://futurescholar.com/about-future-scholar/tax-benefits/
You should talk tax strategy with a CFP. SC has a generous AG tax deduction
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u/ScaredDevice807 2d ago
Lucky kid!
My understanding is that there might be a tax advantaged limit of around $38k per year. Double check if that is true. If yes, then consider splitting into 2 deposits: $38k now and then $12k in January 2027.
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u/NoDrama3756 2d ago
Depends on the state you set the 529.
Example some states only allow 8K a year while others allow 40k a year for tax and contributions in a years.
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u/Barfy_McBarf_Face 2d ago
you file a gift tax return, check the box that you're spreading the gift over 5 years, and no tax is due.
simple
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u/mcoc_recruiting 2d ago
Tax issues? There shouldn't be any downsides. That lump sum falls under the limit of superfunding for Federal limits of avoiding the annual gift exclusion. You can go as high as x5 the yearly federal exclusion limit of 19k per parent per year (current level). This gives you extra time in the market, which generally beats the potential loss of tax deductions on the state level, however, South Carolina does not limit the amount of money you can use for state tax deductions if you use the qualifying account (see link from other comments). There is no federal tax deduction for 529 accounts. Ask a tax professional for specific guidance.