<p>The 5-year carry forward option, if used in its entirety in year 1 ($130,000 total), means that any additional gifts that you make in the five-year period are then subject to the gift tax or GSTT (generation-skipping transfer tax). If you don’t use it in its entirety, then you can make additional contributions in subsequent years.</p>
<p>These limits are per beneficiary, by the way.</p>
<p>Edited w/more information:</p>
<p>When you elect to use the 5 year rule, you report on Form 709, and the amount you contribute is then allocated 20% for each year. For example, if you contribute 50,000 under the election, it is deemed 10,000 per year. You then have another 3,000 left to contribute per year if you want to. This applies to each spouse. You do not have to file the 709 for the other 4 years unless you make another 5 year election, or have another need to file, such as exceeding the annual limit for that year.</p>
<p>If you fund a 529 in this way, you won’t reach the $130,000 max because years 2-5 will be limited to $3000/year.</p>
<p>If you exceed the 13k including the election allocations, then the excess is deducted from your 1mm lifetime limit. You must file the 709, but no current gift taxes are due until you exhaust the 1mm.</p>