Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

What is the maximum contribution allowed to a 529 Plan to avoid gift tax consequences when front-loading?

1. $130,000

2. $65,000

3. $15,000

4. $10,000

The correct answer is: $130,000

The maximum contribution allowed to a 529 Plan to avoid gift tax consequences when front-loading is $130,000. This amount comes from the ability to take advantage of a special gift-tax exclusion when making contributions to 529 Plans. Individuals can contribute up to $15,000 per year without triggering gift tax implications, which is known as the annual gift tax exclusion. However, when front-loading a 529 Plan, contributors can utilize a provision that allows them to make a lump-sum contribution for up to five years' worth of the gift tax exclusion without incurring gift tax. By multiplying the annual exclusion amount ($15,000) by five, the total comes to $75,000. For couples who are married and file jointly, this amount effectively doubles to $150,000. Nonetheless, each individual can apply the $15,000 exclusion per recipient, leading to an allowable contribution without gift tax implications of $130,000 when utilizing both individuals' exclusions for this purpose. In the context of front-loading a 529 Plan, it allows parents or grandparents to quickly fund the account for future educational expenses, while remaining within gift tax limits. It's important to remember that while this amount helps avoid gift tax, careful consideration must be given to