How to Make the 529 5 Year Election

The 529 five-year election is a provision in federal tax law that allows a contributor to make a substantial, single-year contribution to a 529 education savings plan and treat it for gift tax purposes as if it were made evenly over a five-year period. This financial strategy is used to accelerate the growth of a college savings account by allowing a large, upfront investment. By spreading the gift over five years, contributors can avoid using their lifetime gift tax exemption or paying gift taxes.

Understanding the Contribution Rules

The federal government allows individuals to give a certain amount of money to any other person each year without having to pay a gift tax or file a gift tax return. For 2025, this annual gift tax exclusion is $19,000. Any gift up to this amount to a single individual in a calendar year is not a taxable event.

A special rule for 529 plans permits a contributor to make a lump-sum payment of up to five times the annual exclusion amount at once. This means an individual can contribute up to $95,000 ($19,000 x 5) to a beneficiary’s 529 plan in a single year and elect to treat that contribution as if it were made in $19,000 increments over five years. This front-loading of contributions can significantly enhance the account’s potential for tax-deferred growth over time.

Married couples can leverage this rule even further through a practice known as gift-splitting. By combining their individual annual exclusions, a couple can contribute up to ten times the annual limit, or $190,000, to a single beneficiary’s 529 plan in one year. To do this, they must both agree to split the gift, and each must file a separate gift tax return to make the five-year election. This allows for a substantial initial funding of the account, maximizing the time for investments to grow.

If a contributor makes a lump-sum gift and makes the five-year election, they cannot make any additional gifts to that same beneficiary during the five-year period without those subsequent gifts being considered taxable. For example, if an individual contributes $95,000 and makes the election, any other gift to that same person in the following four years would require the filing of a gift tax return.

Should a contribution exceed the five-year maximum, such as more than $95,000 for an individual, the excess amount is treated as a taxable gift in the year the contribution is made. For instance, a $105,000 contribution would result in a $10,000 taxable gift for the current year, while the remaining $95,000 would be covered by the five-year election.

Information and Forms for Making the Election

To make the five-year election, a contributor must file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. This form is used to report gifts that exceed the annual exclusion and to make the specific election for 529 plan contributions.

To complete Form 709, you will need the following information:

• Your full name, address, and Social Security number.
• The same information for the beneficiary of the 529 plan, referred to as the “donee.”
• The exact date the funds were transferred and the total contribution amount.
• The 529 plan account number.

The election itself is formally made on Schedule A of Form 709. On this schedule, the contributor must report the total amount of the contribution. There is a specific checkbox on the form that must be marked to indicate that the filer is electing to treat the contribution as made ratably over a five-year period. The IRS also requires that an explanation be attached to the return, stating the total amount contributed, the amount for which the election is being made, and the name of the beneficiary.

When filling out the form, only one-fifth of the total contribution is reported as the current year’s gift. For a $95,000 contribution, $19,000 would be listed as the gift for the current year. This amount is then offset by the annual exclusion, resulting in a taxable gift of zero for the year, assuming no other gifts were made to that beneficiary.

Submitting the Gift Tax Return

The deadline for filing Form 709 is April 15 of the year after the gift is made. This deadline aligns with the typical income tax filing deadline.

If a contributor files for an extension for their federal income tax return (Form 4868), that extension automatically applies to the filing of Form 709, pushing the deadline to October 15. An extension to file is not an extension to pay any gift tax that might be due.

The completed Form 709 must be mailed to the IRS. The correct mailing address depends on the state where the filer resides and whether a payment is being included. The official instructions for Form 709 provide a detailed list of mailing addresses. You should retain a complete copy of the filed Form 709 for your records, as the IRS does not typically send a confirmation of receipt.

Special Considerations and Consequences

If the contributor dies before the full five-year term has passed, the portion of the contribution allocated to the years after the contributor’s death is included in their gross estate for federal estate tax purposes. For example, if a contributor makes a $95,000 contribution in year one and dies in year three, the contributions allocated to years four and five would be included in their gross estate.

A change in the beneficiary of the 529 plan during the five-year window can have tax implications. If the beneficiary is changed to a new individual who is a member of the original beneficiary’s family, it is not considered a new gift. However, if the new beneficiary is not a family member of the old beneficiary, the change is treated as a new gift from the original contributor.

The amount of the contribution that can be spread over five years is based on the annual gift tax exclusion in effect for the year the gift was made. For instance, if a contribution of $95,000 is made when the exclusion is $19,000, the prorated annual gift is $19,000 for all five years. This amount does not change even if the IRS adjusts the annual exclusion amount in any of the subsequent four years.