The gift-tax annual exclusion, impacting those making contributions to 529 plans, will be increased by $1,000 to $14,000 for 2013.

Beginning on January 1, the special five-year election will cover up to $70,000 in upfront contributions to a 529 plan – treated as completed gifts eligible for the annual exclusion – per beneficiary. For a married couple each making contributions or agreeing to split gifts, the election allows as much as $140,000 in upfront contributions before dipping into their lifetime exemptions.

If an individual has already made the five-year election on $65,000 in 529 contributions, the increase in the annual exclusion will permit an additional $1,000 contribution in each remaining year under the election without creating a gift-tax filing requirement. However, it will not be possible to achieve the $1,000 gift target by contributing an additional $5,000 to the 529 plan and making another five-year election since this can only be made when total contributions during the year exceed the annual exclusion amount, or at least $14,001. 

Remember, in any discussion of the gift-tax consequences of contributions to a 529 plan, the available annual exclusion must first be reduced by other non-529 gifts made during the year.