Feeling Generous? Gifting Strategies to Take Advantage of in 2024

January 23, 2024

Feeling Generous? Gifting Strategies to Take Advantage of in 2024

Are you feeling generous? If so, there are several options and strategies you may take advantage of during 2024. Gifting to individuals or charities you care about may make sense for you using one or more of the strategies below.

Annual exclusion gifts: Each year, an individual may gift up to a specific dollar amount to another individual to make the gift non-reportable to the IRS. In 2024, that figure is $18,000. If you feel generous, you could gift up to $18,000 without you or the recipient having to pay taxes on the gift or file an additional tax form with the IRS. For a married couple, the annual gift tax exclusion is double. Therefore, if you and a spouse would like to gift funds to another person, up to $36,000 may be gifted in 2024 while remaining under the annual gift tax exclusion. Those who gift an amount that exceeds the annual gift tax exclusion may do so but must report the gift by filing IRS Form 709.

College funding: The most common and ubiquitous way to save for college these days is through a 529 savings plan. This plan allows you to contribute money on behalf of a beneficiary to save for their higher education expenses. The annual gift tax exclusion still applies, meaning one individual may contribute up to $18,000 in 2024 to an individual's 529 plan. A caveat for 529 plans is a strategy called "Superfunding," by which you may contribute up to 5 years' worth of contributions at once into the plan, which for 2024 is $90,000 (5 years x $18,000 per year). This would allow more dollars to be invested earlier, with the idea that the account would have more time to grow. Still, you cannot give more money to that beneficiary within that same five-year period without counting against your lifetime fit tax exemption.

UTMA/UGMA: Less common with the advent of 529 plans is the Uniform Transfer to Minors Act/Uniform Gift to Minors Act. These are irrevocable gifts to a beneficiary younger than the age of majority in your specific state. In Connecticut, the age of majority is 21 years old. Before the beneficiary reaches the age of majority, you or someone else will act as the account's custodian. When the minor comes of age, the funds within that account come under the beneficiary's control. Because a UTMA/UGMA account is an outright gift to a minor beneficiary and not designated for one particular savings goal like a 529, suitability may differ from situation to situation.

Qualified Charitable Distribution: Qualified Charitable Distributions, or QCDs, allow individuals aged 70 ½ or older to give to charities directly from a taxable IRA. This can benefit those who must take a Required Minimum Distribution (RMD) but would like to avoid the taxes associated with a distribution from their IRA in that given year. Every dollar donated to charity from the taxable IRA is a dollar counted against that individual's RMD. If you typically give to charity and are of RMD age, taking advantage of QCDs may suit you.

Please consult your financial advisor and tax professional to determine whether you should take advantage of these gifting strategies.