Completed Sample IRS Form 709 Gift Tax Return for 529 Superfunding / Front-Loading

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529Updated for 2018. Let’s say you are fortunate enough to be able to make a large contribution to a 529 college savings plan, perhaps for your children or grandchildren. You read from multiple sources that you are able to contribute up to $75,000 at once for a single person or up to $150,000 as a married couple (2018), all without triggering any gift taxes or affecting your lifetime gift tax exemptions. (From 2013-2017, these numbers were $70k/$140k). What you are doing is “superfunding” or “front-loading” with 5 years of contributions, with no further contributions the next four years.

Those are pretty big numbers, but any contribution above $15,000 will require you to file a gift tax return because that is the annual gift tax exclusion limit for 2018. ($14,000 for 2013-2017.) You’ll need to fill out IRS Form 709 [pdf], “United States Gift (and Generation-Skipping Transfer) Tax Return”. The instructions are quite long and confusing. You ask your accountant and they suggest talking to your estate lawyer. You may wish to avoid paying the $400 an hour or whatever it will cost as the form should be pretty straightforward.

So how do you fill out form 709 for a large but simple 529 contribution? Here are the resources that I found most helpful:

(Note that I have found what I consider minor errors and/or inconsistencies in some of the sample 709 forms above.)

Here’s a redacted version of my completed Form 709. Let me be clear that I am not a tax professional or tax expert. I am some random dude on the internet that did his own research to the best of his abilities and filled out the form accordingly. This is what my form looks like. It could be wrong. You’ll need to make changes to conform to your specific situation. Feel free to offer a correction, but please support your statement.

For my version, I am assuming that you and your spouse contributed the maximum $140,000 together. (I didn’t actually contribute that much.) The 2014 form is shown below, but I just did this for another kid using the 2017 form and I couldn’t find any differences. Note that you’ll need to file two separate gift tax returns, one for you and one for your spouse. Mail them to the IRS in the same envelope, and I like to send them certified mail.

f709_generic1_ediated

f709_generic2

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Here is my Form 709, Schedule A, Line B Attachment

Form 709, Schedule A, Line B Attachment

– Donor made a gift to a Qualified State Tuition Program (a 529 plan).

– Total amount contributed $140,000 in 2014.

– Donor elects pursuant to Section 529(c)(2)(b) of the IRS Code of 1982, as amended to treat the gift as having been made equally over a 5-year period.

– The gift was made jointly by the taxpayer and the taxpayer’s spouse on January 1st, 2014 and will be split equally in half.

– Election made for $140,000 over 5 years is equal to $28,000 total per year, or $14,000 per person per year.

– The contribution is for

Juniper Doe
Daughter
1234 Main St
New York, NY 10001

When to file Form 709. When taking the 5-year election, you must fill out the gift tax return (Form 709) by April 15th of the year following the year in which in the contribution was made. So if you make the contribution in 2018, you must file Form 709 by April 15th, 2019. If you make the upfront contribution in the first year and then make no future contribution in the next four years, you do not have to file a gift tax return after the one you did for the first year.

What if you’re late? Well, you should file the Form 709 as soon as possible. If you did not exceed the limits then technically there is no gift tax due, and there is no penalty that I could find for late filing when there is no taxes due. Still, I would file ASAP.

The tax information set forth in this article is general in nature and does not constitute tax advice. The information cannot be used for the purposes of avoiding penalties and taxes. Consult with your tax advisor regarding how aspects of a 529 plan relate to your own specific circumstances.

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Comments

  1. I have a question regarding 529 plans…

    I have 2 kids, ages 7 and 4. I want to contribute to a 529 plan, but not sure if I should put it in my name or theirs. If it is in my name, I could perhaps give it to a niece or nephew should one or both my kids not attend college. If it is in the kids names, I presume I could pull it from one and give it to the other, but I’m just not sure how that all works. There is also the issue of financial aid. (If the 529 plan is in my name, does that make it easier for them to get financial aid and then I could transfer it to their name?)

    I’ve yet to see an article discussing the best plan of attack for 529 plans.

  2. Thanks for this post. I’m confused here, though. We have 529s for both our children. My understanding was that ownership of these accounts lies with the account holder and the children are beneficiaries. In other words, they count as our (the parents’) assets for the purposes of calculating financial aid and other net worth tests, and remain in our estate. As a result, I don’t understand why contributing to them could possibly be considered a gift and trigger this kind of IRS filing. What am I missing?
    Thanks.

  3. I am confused as to why you needed to file this. You get $14k per spouse. Why did you have the $28k come from one spouse rather than $14k from each spouse thus negating the necessity for the form?

  4. Based on my experience, this whole article seems misleading to me. 529 accounts are taxed by owner, not beneficiary. So this gift tax only applies if someone like a grandparent gives an account owner like a parent a large sum of money to invest. Otherwise, you just put the money in a 529 account under your name as the owner and you’re done; no forms required. Or did I miss something?

    @Maury: The account should be in your name. Then you control the money and can decide where you want it to go. You must designate a beneficiary, but you can change that along the way if needed (say your first child gets a big scholarship and doesn’t need all of the funds you set aside for them, so you redirect them to you second child).

  5. Mark Weber says:

    RE: Andy, TJ

    The reason for the IRS Form 709 filing is because the gift was actually for $140,000.00… This is called “superfunding” for 529s. A special rule for 529s permits you to make up to 5 years worth of annual gift exclusion transfers in a single year. So $14k per parent = $28k x 5 = $140k. After making this gift, you cannot transfer any more money for 5 years without incurring a tax. Why would someone superfund? Because that gives you 5 years of tax-free gains on a larger principal. Consider $140k @ 6% for 18 years compounded annually is ~$400k.

    RE: Scott

    529s are generally setup as “account holder” and “beneficiary”, with the parent being the account holder and the child being the beneficiary. This allows the account holder to make the decisions about how the money is used and invested. However, TRANSFERS TO A 529 ARE TREATED AS GIFTS TO THE BENEFICIARY, thus the need to be careful of the gift tax limit (currently $14,000).

    • Does anyone have sample of 709 using lifetime amount as portion of 5.3M?
      Basically I like to use 709 to report a gift value off $200K and not pat tax , as it will be part of $5.3M lifetime.

  6. Hi,

    Thanks for uploading this form. Seeing as this is the only place on internet where such a completed form is available, I can’t thank you enough for the time and effort it saved me. That said, a few minor questions/remarks:

    – It would have been great if you filled in the SSN and signature fields (with fake values of course). Leaving some required fields blank means that the rest of the blank fields become suspect – should we fill them or not?
    – Why is total number of donees (line 10 of page 1) 2 and not 1?
    – The form says that if 11(a) is answered with a “No”, 11(b) must be skipped. You did not skip 11(b)
    – What about the “Gifts made by spouse —complete only if you are splitting gifts with your spouse and he/she also made gifts. ” section in part 1? Why did you not fill it? And if we fill that part, do we still need to complete two separate forms (one for each spouse) or is just one form enough?
    EDIT: Actually the instructions form for 709 is clear that we can’t file gift tax returns jointly. “A married couple may not file a
    joint gift tax return. However, if after reading the instructions below, you and your spouse agree to split your gifts, you should file both of your individual gift tax returns together (that is, in the same envelope) to help the IRS process the returns and to avoid
    correspondence from the IRS.”

    Thanks,
    P

    • Total number of donees should be 1 and not 2. I was editing my personal sheet which had 2 donees and made an error. If you only have one donee, then the form should note that. I will have to get back to the other questions.

    • I have updated the first page of my sample form 709.

      – Filled in SSN with fake numbers
      – Corrected total donees for sample case (one listed on sample form)
      – Skipped 11(b), left it blank instead
      – Added reminder for consenting spouse to sign and date

  7. When filing a Form 709 to report “superfunding” a QTP for a grandchild, do you also need to complete Part 2 of Schedule A to report this as a “direct skip”? Technically it IS a “direct skip” as an outright gift to a grandchild, BUT since it is sheltered by the $14,000 annual exclusion, is it also technically reportable in Part 2 as a “direct skip”? Can’t find an answer or example that addresses this in the IRS instructions. Obviously no tax due, but I have an aversion to “over-reporting” anything.

  8. Thank man. I appreciate it! I’m not sure why they make such a simple act so complicated to fill out. You saved me hours.

  9. Like the other said: Thank you so much!

    I swear it feels like my reading comprehension gets downgraded to “idiot level” when I have to read the IRS instructional booklets. I just can’t seem to make sense of their explanations.

    On the other hand, I appreciate your ability to explain the 709 form in a straight-forward manner. So helpful.

  10. Thank you sir!! I am glad someone took the effort for the rest of us to post a sample form. I have filed a 709 for a similar gift split for childs education fund with spouse and am filing one this year too.

    May be as an extension, could you add how your NEXT years form 709 would be if you were in a similar situation of having split 28k between your spouse and yourself again. I was struggling filling out schedule B (which you left empty as you indicated never having filed a gift tax before) especially columns c and e. If I understood correctly, column E refers to taxable gifts. In situations like yours (and mine), it would be zero and not 14k even though you gave 14 k out to your child. My reading of column C, “Enter the applicable credit against tax allowable for all prior periods” was similarly the amount of tax calculated for those taxable gifts. So also zero. Am I right?

    thanks

  11. MikeInSugarland says:

    Thank you for the detailed explanation !! I didn’t understand how it works until I saw it here. Here is a link to site that also explains how to fill out the 529 plan – it mirrors what this blog said as well – so it is confirmed.

    http://www.bayalisistheanswer.com/hitchhikers-guide-529-superfunding/

  12. Does anyone have sample of 709 using lifetime amount as portion of 5.3M?
    Basically I like to use 709 to report a gift value off $50K and not pay tax , as it will be part of $5.3M lifetime.

  13. Nina: I’ve been looking around as well and no one does. Everyone just mumbles out an answer. Some mention unified credit, but that word isn’t mentioned anywhere on the form.

    This is also why they go with easy numbers like 14000 that cancels out by annual exclusion.

  14. I’ve been debating whether to superfund our 529s and the remaining question has to do with state tax benefits. In my state I can deduct up to $20k annually for funding 529s. But if I superfund, do I lose the ability to deduct that for the 4 years following the initial superfund?

  15. Jay the CPA & EA says:

    I’m a CPA and Enrolled Agent. I had a friend reach out to me regarding many of these same issues and forwarded this page along as a reference. In discussing these issues with my friend, I thought I would add some guidance free of charge. Here goes.

    Johnathan-

    You are pretty close and I commend you for your effort. To fellow readers, please don’t file your return this way. It can be very, very confusing; I understand.

    You and your wife should each file Form 709 for $14,000 apiece, assuming you are contributing cash owned jointly. You will only do a gift split if you gift a piece of property YOU own SEPARATELY from your spouse and you want to consider it as 1/2 from you and 1/2 from her. In that event, you would still need to each file your own Form 709. Columns D, F & H would be $14k on each spouse’s return with column G left blank. (NOTE: This amount has since increased to $15,000 and will continue to increase periodically.)

    A by-product of this is that on page 1, Part 1; lines 12, 13 & 14 should be left blank.

    Other Notes:

    *The information Mark’s 8/31/15 post is correct.

    *Regarding Richard’s 2/5/17 post, the short answer is no. If YOU set up the 529 plan for the grandchild, YOU own it for the benefit of the the grandchild. No GST. If the 529 is established by the grand child’s parents and you merely contribute to it, there would still be no GST (generation-skipping tax). The owner would be your child (or son/daughter-in-law) for the benefit of the grandchild. Therefore, the gift technically only goes down 1 generation. The GST is triggered at the 2nd generation and beyond (or various other rules for non-family donees.)

    *Regarding Kris’ 4/15/17 post, the answer is that you more than likely don’t need to file the Form 709 for the following 4 years. If you made other gifts that would trigger the need to file a Form 709 in any of the following 4 years, only then would you file a Form 709 Gift Tax Return. In this scenario, any 709 filed over the next 4 years would show the $14,000 for that year in addition to the other gift that caused the need to file the return. They would both be shown. Most importantly, if you didn’t make any other gifts above the $14k threshold (note: this amount is now $15,000) in any of the following 4 years, no gift tax return is required. For most who superfund, they only have to file the initial return because they don’t give gifts above the threshold in the following years.

    Regarding Nina and Rep’s posts, I simply don’t have the time to fill out a sample and I don’t share client work; even if it is redacted. I will provide some general guidance though. Regarding the $5.3M “exclusion vs. the unified credit, I should first point out that the $5.3M has since increased to $11.18M. The unified credit is simply the tax liability that would result if the the amount of the exclusion weren’t excluded. Basically, if there was no such thing as an exclusion, a gift of $5.34M (example of 2015 exclusion amount) would create a tax liability of $2,117,800. Therefore, for 2017, the “unified tax credit” is $2,117,800. Instead of calculating your total gifts against that year’s exclusion, they instead calculate it as the tax credit that full exclusion allows. The form then calculates your tax liability as if there were no exclusion and the offsets that liability with the unified tax credit. It is confusing but it makes since to do it that way for reasons I won’t go into here. It has to do with carrying forward deceased spouses’ unused amounts, handling gifts in multiple years with differing exclusion amounts in each year, etc.

    Now to the practical part. You’ll start with Schedule A, Part 1. You’ll enter $50k. You won’t have a split if it’s cash. If you want to split it, you and your spouse would each file a gift tax return at $25k or whatever you decide. All in all, column H will come out to $50,000. That carries to Part 4, line 1; which is shown on Johnathan’s 3rd page in the above example. Line 2 will show $15,000, assuming the gift was in 2018 and was all given to the same person. Line 3 will be the net amount, which is $35,000. If it was given to multiple people, they will all be listed on Schedule A Part 1 and Schedule A Part 4 line 2 will be $15,000 x the number of donees. On line 7 of Sch. A Part 4, you have to enter the TOTAL amount of charitable contributions for that year, net of the annual exclusion to each recipient. On Schedule A, you need to list every charitable contribution you made in that tax year. On line 7 of Sch. A Part 4, you will only include any amounts that exceed the annual exclusion ($15k for 2018; $14k for 2015-2017). If you didn’t give any single organization more than $15k (for 2018), line 7 will be $0. If you did, you will enter the total gifts to organization’s that exceed the annual exclusion. You’ll subtract line 7 from line 3 and enter that amount on line 9. This more than likely carries to line 11 and is then taken to Page 1, Part 2, line 1. Assuming no gift tax returns in prior years, this amount will then carry to line 3. If you made gifts in prior year, you’ll just put that on line 2 and get a net number on line 3.

    FINALLY, this is where you calculate the gift tax (as if there were no unified credit; see my comments above). You’ll use the table on the next to last page of the Form 709 Instructions to calculate this tax. In your case, gifts of $35,000 would generate a gift tax of $5,100 using 2018 figures. Your unified tax credit, as described above will offset this amount. For 2018, the unified credit is $4,417,800 (which represents the “would be” gift tax on the 2018 exclusion amount of $11.18M). Your tax liability for 2018 would be $0. Your remaining unified tax credit would (theoretically) be $4,412,700 (which is $4,417,800 – $5,100). The reason I say “theoretically” is because this amount actually re-calculates each year going forward. If the tax law changes the credit amounts or gift tax rates, it will essentially calculate your gift tax liability on the $35,000 using the rate in place AT THAT TIME. They will then subtract that amount from the unified credit in place AT THAT TIME. There’s more to it than that but it’s the basic logic.

    In response to Joe’s question on 5/10/18, the answer to that varies from state-to-state. It depends on what your state tax code allows. Another state will treat it differently. Even if I knew what state you are in, I probably wouldn’t know off hand and would have to look it up myself. Good luck.

    NOTE: This does not constitute tax advice or a client relationship. It is for educational, illustrative and/or discussion purposes only. Please seek qualified counsel as needed regarding your own personal situation.

    • Thanks so much for the guidance.

      You wrote “…A by-product of this is that on page 1, Part 1; lines 12, 13 & 14 should be left blank.”. Do you mean that Line 12 should be answered “No” and lines 13 to 18 should be left blank?

    • Thanks for the advice Jay.

      I your computation you indicated gifts of $35,000 would generate a gift tax of $5,100 using 2018 figures. Should this be $7,100 from the table? e.g. 3800 + 0.22*(35000-20000)

  16. Regarding “superfunding” a QTP for grandchildren:

    If a grandparent makes contributions to the parent-owned 529 plans of two grandchildren and parent (rather than each child) is considered the beneficiary, is the maximum 5-year exclusion amount allowed 150,000 total – i.e., 75,000 per child – instead of 150,000 per child? And is the parent who owns the 529 plan listed as the donee on the form – rather than each child? thank you in advance for any help you can provide

  17. Sorry – I should have said if the parent of the two grandchildren is the Owner of the 2 accounts and each grandchild is the beneficiary of one of the two accounts – Who is listed as the donee – the parent or the grandchildren and if the parent is listed as the donee, does this limit the donors from depositing only 75,000 per child for the 5 year period to avoid incurring gift tax liability?

  18. In Schedule A, Part 1, the Obama 709 also filled out the section “gifts made by spouse” but you did not in your example. Not sure I understand the difference between what you did in your 709 vs. what the Obama’s did. Just trying to figure out what I should do because my wife and I gave each kid $150,000 in 208.

  19. I believe I’ve done something wrong on a 709 form as the IRS sent a recalculation letter saying my client owes $23,800!!! Synopsis is this: client gave her 2 children & 2 grands $40,000 each which came from a land sale. What could I have done wrong???

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