902 / When is a gift made with respect to an education savings account?

Contributions to an education savings account are treated as completed gifts to the beneficiary of a present interest in property which can qualify for the gift tax and generation-skipping transfer (GST) tax annual exclusion. The contributions must be in cash and prior to the beneficiary’s 18th birthday. If the contribution is made for a beneficiary designated with special needs, the age limit does not apply.¹ If contributions for a year exceed the gift tax annual exclusion, the donor can elect to prorate the gifts over a five-year period beginning with such year. A contribution to an education savings account does not qualify for the gift tax or GST tax exclusion for qualified transfers for educational purposes.² Distributions from an education savings account are not treated as taxable gifts. Also, if the designated beneficiary of the education savings account is changed, or if funds in the education savings account are rolled over to a new beneficiary, such a transfer is subject to the gift tax or GST tax only if the new beneficiary is a generation below the old beneficiary. Transfers within the same generation do not trigger a gift tax liability.³

See Q 843 for the estate tax treatment and Q 681 for the income tax treatment of education savings accounts.

---

1.    IRC § 530(b)(1).

2.    IRC §§ 530(d)(3), 529(c)(2).

3.    IRC §§ 530(d)(3), 529(c)(5).