Tax question: Can I make catch-up contributions to UTMA or 529 above annual gift limit for my kids?
Title: Tax question: Can I make catch-up contributions to UTMA or 529 above annual gift limit for my kids? 1 I've got two little ones - my boy is 8 and my daughter just turned 6. I've been putting off setting up any college savings accounts for them, but recently came into some inheritance money (around $60k) that I'd like to put toward their future education. I'm wondering if there's a way for me to make a large one-time contribution that exceeds the annual gift tax limit without facing penalties or eating into my lifetime gift allowance. Specifically, could I deposit something like $50k into a UTMA or 529 plan for each child since I've never made any formal gifts to them before? Is there some kind of "catch-up" provision that would let me do this since I've missed several years of potential contributions? Or have I missed the boat on this opportunity and need to stick to the annual limits going forward?
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Jean Claude
12 You actually have a couple of good options here! For 529 plans specifically, there's a special rule that allows you to front-load 5 years of contributions at once. The current annual gift tax exclusion is $18,000 per recipient (for 2025), so you could contribute up to $90,000 per child to their 529 plans all at once ($18,000 × 5 years). You'll need to file Form 709 (Gift Tax Return) to elect this 5-year averaging treatment, but no tax would be due. UTMAs don't have this special provision. Any amount over $18,000 per year per child would count against your lifetime gift and estate tax exemption (currently $13.61 million for 2025). This isn't necessarily a "penalty," but it does reduce your lifetime exemption amount.
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Jean Claude
•8 Thanks for the info! So if I understand right, I could put $90k into each kid's 529 right now without any tax issues as long as I file that form? Would I then not be able to contribute anything else for the next 5 years? And does this affect what my parents could gift if they wanted to contribute to the same 529 accounts?
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Jean Claude
•12 That's right - you could contribute up to $90,000 per child right now without using any of your lifetime exemption, but you would need to file Form 709 to elect the 5-year averaging. Correct, you wouldn't be able to make additional gifts to them for the next 5 years without using some of your lifetime exemption. However, your parents would have their own separate gift tax exclusions - they could each contribute up to $18,000 per year per grandchild (or up to $90,000 each with the 5-year election) completely separate from your contribution limits.
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Jean Claude
17 I was in a similar situation last year and tried researching all this tax stuff myself, but it got confusing fast with all the changing rules. I ended up using https://taxr.ai to analyze my specific situation, and it was super helpful. You upload your documents, ask questions, and it walks you through exactly how to maximize your 529 contributions without triggering gift taxes. It explained the 5-year election that the previous commenter mentioned but also flagged some state-specific tax deductions I would've missed completely. The system even generated the language I needed for my Form 709 and showed me which boxes to check.
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Jean Claude
•9 That sounds helpful but I'm concerned about sharing financial documents online. How secure is it? And does it handle both UTMA and 529 analysis or just 529 plans?
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Jean Claude
•4 Did you find it gave you any info that a financial advisor wouldn't know? I'm thinking about just scheduling a meeting with my tax person, but they charge $250/hour and sometimes don't respond quickly during tax season.
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Jean Claude
•17 They use bank-level encryption and don't store your docs once processed. I was nervous too but they explain their security setup pretty clearly on the site. It absolutely handles both UTMAs and 529s - it actually helped me understand the pros and cons of each for my situation. It showed me how UTMAs would affect financial aid calculations later, which I hadn't considered at all.
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Jean Claude
4 Just wanted to share my experience after trying taxr.ai based on the recommendation above. It was SO much better than waiting for my accountant! I uploaded our financial info and it immediately identified that in our state (NY), we could get an annual state tax deduction for 529 contributions, which changes the calculation completely. The system explained I should actually spread some contributions out annually to maximize state tax benefits rather than doing the full 5-year election for everything. This will save us thousands over time. It generated a complete contribution strategy with exact amounts and timing. Honestly wish I'd known about this years ago!
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Jean Claude
20 If you're planning to use the 5-year election for 529 contributions, just be aware that the IRS can be incredibly difficult to reach if questions come up when filing your Form 709. I spent WEEKS trying to get someone on the phone last year when I had a question about how to report my contributions correctly. I finally used https://claimyr.com and was connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically hold your place in line with the IRS and call you when an agent is ready. Saved me hours of frustration and hold music.
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Jean Claude
•7 Wait, how is this even possible? I thought the IRS phone system was completely broken. Is this just paying someone to sit on hold for you? Seems sketchy that they can somehow bypass the system when everyone else has to wait.
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Jean Claude
•15 I've heard of these services but always wondered if they're worth it. The IRS wait times have been ridiculous lately but paying for something I should be able to get for free rubs me the wrong way. Did they actually solve your issue or just get you connected?
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Jean Claude
•20 It's not bypassing the system - they use an automated dialing system that holds your place in line. They call multiple IRS lines simultaneously to find the shortest wait time, then connect you when an agent answers. It's basically a more efficient way of waiting in line. They just handle the connection part - once you're talking to the IRS agent, it's a direct conversation between you and the IRS. In my case, the agent confirmed exactly how to complete the form for my situation, which saved me from potentially making a costly mistake.
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Jean Claude
15 I was super skeptical about Claimyr too, but I tried it last month when I had questions about reporting the 5-year 529 contribution on my taxes. I was ready to be disappointed, but no joke - I was connected to an IRS tax specialist in under 20 minutes after struggling for days on my own. The agent walked me through exactly how to complete the Form 709 with the 5-year election and explained that I needed to mark certain boxes that weren't obvious from the instructions. She also confirmed I was handling the state tax deduction portion correctly. Saved me from making a mistake that could have caused the gift splitting to be disallowed. Sometimes paying for convenience is actually worth it.
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Jean Claude
11 Just wanted to add another option - you mentioned UTMAs, but have you looked into setting up a trust instead? For larger amounts, a trust gives you more control over when and how the money is used. With UTMAs, your kids get full control at age of majority (18 or 21 depending on state), which might not be ideal for larger sums.
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Jean Claude
•3 I've heard about trusts but assumed they were only for really wealthy people. What's the minimum amount that makes sense for a trust vs a 529 or UTMA? And aren't there a lot of ongoing maintenance costs?
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Jean Claude
•11 Trusts make sense when you're looking at contributions of around $100k or more, though there's no hard minimum. The key advantage is maintaining control over how and when the money is used, even after your children are adults. The costs vary widely depending on complexity. A simple trust might cost $1,500-3,000 to set up and then have minimal annual expenses if you manage it yourself. More complex trusts with professional management can cost much more. It's definitely more expensive than a UTMA or 529, but the control factor can be worth it for larger amounts or if you have specific concerns about how the money might be used.
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Jean Claude
5 The 5-year election for 529 plans is great, but don't forget about potential state tax benefits that might make annual contributions more advantageous. In my state, we get a deduction for up to $10k in 529 contributions per beneficiary each year. So sometimes it makes sense to do a hybrid approach - some upfront and some spread out.
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Jean Claude
•22 That's a good point. I'm in Illinois and we get a $20k deduction for married couples contributing to 529s annually. My accountant suggested we put some in upfront with the 5-year election but also budget for additional annual contributions to maximize the state tax benefit.
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Kaitlyn Jenkins
This is such a helpful thread! I'm in a similar situation with some inheritance money and have been paralyzed by all the options. A few questions for the group: 1. If I do the 5-year 529 election now, am I locked out of making any gifts to my kids for other purposes (like helping with a first car, etc.) during those 5 years without using my lifetime exemption? 2. Has anyone dealt with the situation where you want to contribute to both a 529 AND a UTMA? Like maybe $90k to the 529 with the 5-year election and then smaller amounts to a UTMA for more flexible spending? 3. For those mentioning state tax benefits - do you know if the deduction applies in the year you make the lump sum contribution, or does it get spread out over the 5 years when you elect the gift tax averaging? The inheritance feels like such an opportunity but I don't want to mess this up by not understanding all the rules!
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