A 529 plan is a state-sponsored account that offers tax-advantaged savings to cover college, trade and vocational courses and qualified K-12 expenses.
They can offer financial support because saving for your child’s college expenses can be challenging. Especially when you consider that the 2023 - 2024 average tuition costs for full time undergraduate students in the U.S., according to College Board, are:
- Public four-year in-state: $11,260
- Public four-year out-of-state: $29,150
- Public two-year in-district: $3,990,
- Private nonprofit four-year: $41,540
What are 529 plans?
Broadly speaking, a 529 plan is a qualified tuition plan that allows federal tax-free withdrawal of earnings, as well as the possibility for tax deductions. Each state offers a 529 plan, providing families an opportunity to save for their child’s education. While this once only applied to colleges, the Tax Act of 2017 now allows contributions to be used toward primary and secondary school qualified expenses.
A main benefit of 529 plans are the high contribution limits, which are usually high enough that you may never have to worry about hitting the ceiling. However, if the limit is reached, any contributions made to the account will not be accepted and will be returned to the investor.
What are 529 plan contribution limits
Anyone can contribute to a 529 plan and name anyone as a beneficiary. Parents, grandparents, uncles and aunts, spouses, stepparents and friends can all contribute on behalf of your recipient.
Unlike certain retirement plans, there are no yearly contribution limits to a 529 plan. However, all states have maximum aggregate contribution limits for each 529 account, according to SavingForCollege, which is typically between $235,000 and $575,000.
Georgia and Mississippi have the lowest limits at $235,000 per beneficiary. The highest limit is in Arizona at $575,000.
Five states with the highest aggregate contribution limits
Five states with the lowest aggregate contribution limits
How much can be contributed to a 529 plan each year?
Provided you don't exceed the maximum aggregate contribution limit set by the state where the 529 plan is registered, you can contribute as much as you like each year. That said, the IRS treats 529 contributions as gifts, which means they may be subject to taxation when totaling more than $18,000 per year or $36,000 for married couples filing jointly.
Maximum 529 plan contribution limits
The maximum contribution limit pertains to each beneficiary. These limits depend on the state, and range from $235,000 to $575,000.
These are the 529 plan contribution limits by state, per year
529 contributions and the gift tax
The IRS counts contributions to 529 plans as gifts. So, if you, as an individual, set aside more than the gift tax exclusion—$18,000 for individuals or $36,000 for a married couple giving jointly in 2024—for any one recipient in a tax year, your 529 contributions may trigger gift tax consequences. If you exceed the annual exclusion, you may need to file a gift tax return.
For example, if you have two children and two 529 plans, and you contribute to the plan jointly as a couple, you can give each child $36,000 per year without the need to report those contributions to the IRS. Any contributions above the $18,000 for an individual or $36,000 if married per recipient, per year must get reported to the IRS, at which time they will be counted toward your lifetime gift tax exemption for an individual of $13.61 million, or $27.22 million for married couples in 2024.
529 superfunding
If you want to contribute more to a 529 account without the contributions counting against your lifetime gift tax exemption, the account can be superfunded, which means you fund the 529 plan all at once with up to five year’s worth of contributions.
That means you can contribute up to $90,000 in a single year to a particular 529 plan in 2024 as an individual. Keep in mind that you can’t contribute more money to the same beneficiary within that five-year period without it counting against your lifetime gift tax exemption.
