Clarifying how the tax year is determined for a 529 contribution

Although I've discussed this with my accountant, you may want to verify with yours.

Here's how it works:

A contribution to a 529 plan is considered a gift to a person. There are specific limits as to how much money you can give someone as a gift set by the IRS.

The IRS considers the date the gift was given as the tax year of the gift.

This means that you had until December 31, 2008 to make a contribution to your child's 529 plan and have the contribution considered under the gift tax rules for 2008.

Contributions to 529 plans are not the same as IRA and retirement plan contributions, despite the fact that earnings (not contributions) are tax deferred - some states may provide tax incentives for contributions as well.

You can read about the gift tax details here at the IRS website.

The 2008 gift tax exclusion is $12,000 per recipient from each giver. A married couple can give up to $24,000.

These numbers increase $13,000 per giver in 2009 and $26,000 for a married couple.

As 529 plans are governed by states, you should also check to see what your particular plan contributions are.

Regards, makingourway

PS The whole concept of gift taxes falls very close into questions regarding estate taxes and inheritance.