529 contribution limit workaround

[Mman]

I've done some cursory searching on this and haven't really found a good answer.

So right now my wife and I can stash a total of $30K per kid per year in a 529 plan ($15K for each of us to each kid). I know you can also preload it with 5 years of contributions if you wanted. But is there any reason we could not each gift money to our parents (within the same tax free gift limits) and then have those grandparents turn around and gift the money right back to their grandkids 529?

Am I missing something? I mean it'd be easy to stick 90K per year into each kids 529 by giving 30K to each set of grandparents and having them gift it right back.

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[southerndoc]

Although not specifically addressed in law, this probably violates the IRS Step Doctrine. Basically it states that if two legal steps are done in order to bypass or create a loophole, then it is not allowed by the IRS.

 

[Mman]

Although not specifically addressed in law, this probably violates the IRS Step Doctrine. Basically it states that if two legal steps are done in order to bypass or create a loophole, then it is not allowed by the IRS.

sure, but small value cash gifts (under the tax threshold) aren't even reportable. Is the IRS really in the business of interrogating every grandparent that donates to a 529 to make sure the kids parents didn't give them the old quid pro quo gift first? You and your spouse could legally give each set of grandparents $60K per year with no strings attached and it is not reportable.

 

[FutureInternist]

I've done some cursory searching on this and haven't really found a good answer.

So right now my wife and I can stash a total of $30K per kid per year in a 529 plan ($15K for each of us to each kid). I know you can also preload it with 5 years of contributions if you wanted. But is there any reason we could not each gift money to our parents (within the same tax free gift limits) and then have those grandparents turn around and gift the money right back to their grandkids 529?

Am I missing something? I mean it'd be easy to stick 90K per year into each kids 529 by giving 30K to each set of grandparents and having them gift it right back.

You..... I like how your mind works .
Now if only any of our parents were alive.
Time to find another gullible relative, maybe buy something from them for higher than market value .

Just have to be careful not to exceed the max amount allowed in a 529

 

[southerndoc]

sure, but small value cash gifts (under the tax threshold) aren't even reportable. Is the IRS really in the business of interrogating every grandparent that donates to a 529 to make sure the kids parents didn't give them the old quid pro quo gift first? You and your spouse could legally give each set of grandparents $60K per year with no strings attached and it is not reportable.

It would more likely be discovered during an audit of you (who probably has high income as a physician). Even though they are within limits of gifts, they are still susceptible to scrutiny. The IRS has access to ChexSystems and other systems that lists every single withdrawal and deposit made out of your checking and savings accounts. They may ask about them, follow the trail, and realize what occurred.

Do I think it's likely this will be caught? No. Is it possible? Yes. Is it a step doctrine violation? Who knows. Only IRS knows, and its probably going to be dependent on the agent auditing you.

 

[TheHungarianCPAPFS]

I have found this article about it.

Can a Grandparent Contribute to a Parent-Owned 529 Plan?

Grandparents may contribute to a grandchild’s 529 plan account, but be aware of these consequences if you plan to contribute.

www.savingforcollege.com

It seems that yes, grandparents can contribute, however, you might run into something called the GSTT, Generation Skipping Transfer Tax, since the gift is coming from the grandparents. If grandparents dont have this issue, or they are ok with paying around 55% in taxes, then yes it could be an alternative.