Review These Wealth Transfer Strategies Before the Holidays
Wealth transfer isn’t just about passing out money around the end of the year. It can also secure your family’s financial future while maximizing today’s tax-efficient wealth transfer strategies. Proactive planning can turn a thoughtful gesture into a powerful tool— for college, medical needs, or someone’s big-ticket surprise.
This is a great time to evaluate your wealth transfer options. From annual gifting limits to tools like 529 college savings plans, a well-structured strategy makes your generosity go further.
Let’s explore some of the most effective ways to manage transfers, minimize tax burdens, and leave a lasting legacy.
1. Annual Gifting Limits and Strategies
Annual gifting is one of the most straightforward and effective tools available. The IRS allows people to gift up to $18,000 per person a year without triggering gift tax implications. For married couples, that amount doubles to $36,000 per recipient a year. These limits apply to all gifts—whether they’re a check, stock transfer, or contributions to a savings plan.
Strategic gifting avoids reducing the size of your taxable estate over time. You can transfer significant wealth to loved ones or future generations without tax complications by consistently staying within these limits. If you’re considering larger gifts, you can “split” the gift between spouses, which requires filing a gift tax return to document the allocation but still avoids estate tax liabilities as long as it is within the annual limit.
2. 529 College Savings Plans
529 college savings plans allow you to transfer your wealth to support your child’s or grandchild’s education. These accounts allow tax-free spending for tuition, student loans, college supplies, and other qualified expenses. Thanks to recent updates under the Secure Act, unused 529 funds can now be rolled into a Roth IRA, adding flexibility for families with changing needs.
A unique feature of 529 plans is the ability to “supercharge” contributions by front-loading up to five years’ worth of gifts at once. You can deposit up to $90,000 for individuals or $180,000 for couples in a single year, giving the account a significant head start. However, avoid overfunding a 529, as penalties apply to non-qualified withdrawals—though these are limited to the account’s earnings, not the principal.
Finally, families can rest easy if they’re concerned about their students earning scholarships. The plan allows penalty-free withdrawals equal to the scholarship amount, which keeps the funds from going to waste.
3. Tuition and Medical Expenses
You can also directly support your loved ones by paying tuition or medical expenses. The IRS excludes these payments from gift taxes, provided they are made directly to the educational or medical institution. You can pay a grandchild’s tuition or cover a family member’s medical bills above and beyond your annual gift tax exclusion.
For example, you could pay your grandchild’s $50,000 annual college tuition bill and still gift them $18,000 in the same year without incurring any gift taxes. Similarly, covering a loved one’s medical expenses—whether for surgery, hospital stays, or other treatments—offers the same benefit, provided you bypass the individual and pay the institution directly.
4. Year-End Gifting: Why Timing Matters
You’ll need to decide on your gift transfers before the end of the year so you can plan your next contributions in 2025. Here are some factors to think about:
- Maximize Annual Limits: The IRS gifting allowance resets on January 1, so making gifts before year-end ensures you use the current year’s annual exclusion. This approach avoids missing a chance to reduce your taxable estate.
- Holiday Needs and Deadlines: The holiday season often brings increased expenses, such as travel or gifts. A year-end gift might come just in time for someone you care about. Additionally, the gift may free up cash for them to contribute to tax-advantaged accounts like Roth IRAs, and 529 plans must be made before December 31 to count for the current tax year.
- Strategic Advantages for Recipients: Helping fund accounts like Roth IRAs by year-end allows tax-free growth to start immediately. A timely gift can have an outsized impact on those with immediate financial needs, such as tuition or medical bills.
Build a Lasting Legacy Through Strategic Giving
Careful planning and professional advice are essential to making the most of these opportunities. A tailored approach allows you to achieve your financial goals while providing meaningful support to the next generation.