Can retirees contribute to 529 plans?

[MichealKnight]

Googling - sometimes it says that a married couple filing jointly can contribute upto $30,000 a year, per kid ($15k for each spouse). And the $30k is shielded from state income tax.

But - some places say that each spouse must have at least "$15,000 in income".

Then other links say that there must be at least $30,000 in "earned income".

So I'm wondering if anyone has experience with this - - if 100% of your income is passive, non-W2 income be it dividends, cap gains, or rental income- -- can you still deduct the 529 contribution from state taxes? Thanks for reading

 

[MissMolly]

Googling - sometimes it says that a married couple filing jointly can contribute upto $30,000 a year, per kid ($15k for each spouse). And the $30k is shielded from state income tax.

But - some places say that each spouse must have at least "$15,000 in income".

Then other links say that there must be at least $30,000 in "earned income".

So I'm wondering if anyone has experience with this - - if 100% of your income is passive, non-W2 income be it dividends, cap gains, or rental income- -- can you still deduct the 529 contribution from state taxes? Thanks for reading

Who Can Contribute to a 529 Plan?
Anyone can contribute to a 529 plan account and name anyone as a beneficiary. Parents, grandparents, aunts, uncles, stepparents, spouses, and friends are all allowed to contribute on behalf of a beneficiary. While there are no income restrictions for the contributor, the maximum contribution limit applies to the beneficiary, not the individual making the contribution. Balances designated for a specific beneficiary cannot exceed the maximum allowed by the state’s 529 plan.

https://www.investopedia.com/articles/personal-finance/010616/529-plan-contribution-limits-2016.asp

 

[athena53]

So I'm wondering if anyone has experience with this - - if 100% of your income is passive, non-W2 income be it dividends, cap gains, or rental income- -- can you still deduct the 529 contribution from state taxes? Thanks for reading

I'm in MO and I can. It may depend on the state. I'm counting on TurboTax to get it right but I get a state tax break on the first $9K in contributions.

 

[cathy63]

Googling - sometimes it says that a married couple filing jointly can contribute upto $30,000 a year, per kid ($15k for each spouse). And the $30k is shielded from state income tax.

But - some places say that each spouse must have at least "$15,000 in income".

Then other links say that there must be at least $30,000 in "earned income".

So I'm wondering if anyone has experience with this - - if 100% of your income is passive, non-W2 income be it dividends, cap gains, or rental income- -- can you still deduct the 529 contribution from state taxes? Thanks for reading

Per IRS Pub 970, "there are no income restrictions on the individual contributors" for a 529 account. The federal government does not care where you get the money.

Each state and plan has its own rules on maximum contributions and maximum aggregate account values though. Some plans do have a $15K max, others allow as much as you want to give up to their max account value. Here's a summary of limits for each state's plans: https://www.savingforcollege.com/compare-529-plans/maximum-contributions

Money you put in a 529 is considered a gift to the beneficiary of the account. If you have an account that allows more than $15K in annual contributions you can certainly put more money in, you will just have to file a federal gift tax return (form 709) if you do. You won't owe any tax on the gift unless you give away $11M+ in your lifetime, it just has to be reported.

Whether contributions are deductible or not depends what state you're in and what plan you contribute to. Some states don't allow any deductions for 529 savings, some allow deductions only for their own plans. A beneficiary can have multiple accounts, so if you're a grandparent living in one state and your grandchild lives in another state, it might work out best to have the parents open an account in their state and you open an account in your state so you can all take the state tax deductions.