903 / When is a gift made with respect to a qualified tuition program?

For gift tax and generation-skipping transfer (GST) tax purposes, a contribution to a qualified tuition program on behalf of a designated beneficiary is not treated as a qualified transfer for purposes of the gift tax and GST tax exclusion for educational expenses, but is treated as a completed gift of a present interest to the beneficiary which qualifies for the annual exclusion (see Q 905). If a donor makes contributions to a qualified tuition program in excess of the gift tax annual exclusion, the donor may elect to take the donation into account ratably over a five-year period.¹ Distributions from a qualified tuition program are not treated as taxable gifts. Also, if the designated beneficiary of a qualified tuition program is changed, or if funds in a qualified tuition program are rolled over to the account of a new beneficiary, such a transfer is subject to the gift tax or generation-skipping transfer tax only if the new beneficiary is a generation below the old beneficiary.²

See Q 844 for the estate tax treatment and Q 687 for the income tax treatment of qualified tuition programs.

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1.    IRC § 529(c)(2).

2.    IRC § 529(d)(5)(B).

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