529 plan contribution escapes gift tax

You can see why 529 program disclosure materials speak of the possibility of a $60,000 ($120,000 per couple) maximum contribution to a 529 plan for each beneficiary without incurring gift tax. That is the maximum shelter you can achieve in 2008 with the five-year election. In 2009, that number bumps up to $65,000 ($130,000 per couple).

For anyone making sizable contributions to a 529 plan, the gift-tax rules can complicate things, as demonstrated by the discussion above. You can read more about the gift-tax treatment, including the five-year election, in IRS Publication 970 and in the instructions to Form 709.

Don't forget to count other non-529 gifts you may have made to your beneficiary -- or that you intend to make -- when developing your 529 contribution schedule. To the extent you utilize your annual exclusion on gifts of cash or other property, you will have less available for your 529 contributions.