During the current year, U made a $36,000 contribution to a 529 plan to help cover the cost of an undergraduate degree for D, her 15-year-old daughter.Assume that in the year D enrolls as a freshman at State University, the balance in the 529 plan has grown to $45,000.If D receives an $11,000 distribution to pay for her tuition, she may exclude from her gross income:

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The annual gift tax exclusion for 2023 is $17,000 per donee. U made a $36,000 contribution to the 529 plan, which is twice the annual exclusion. Therefore, $18,000 of the contribution is subject to gift tax. The remaining $18,000 is not subject to gift tax. When D receives the $11,000 distribution, she may exclude $8,800 from her gross income. This is because the first $8,800 of a distribution from a 529 plan is tax-free. The remaining $2,200 of the distribution is taxable.

During the Current Year, U Made a $36,000 Contribution to a 529