A 529 plan is a tax-advantaged way for parents to save for their children’s education costs. The IRS does not impose a contribution limit on 529 plans, unlike other tax-advantaged accounts such as 401(k)s and Roth IRAs, although some limits do exist.
States often impose their own life limits, even though they are all higher and better than what a family is likely to need. Savers may also exceed the IRS gift tax exclusion, which carries tax implications, although this won’t be a problem for most people.
Here’s what you need to know about contribution limits for 529 plans.
What is the contribution limit for 529 plans in 2024?
One of the many benefits of 529 plans is that there is no federal limit on the amount you can contribute. But while there is no federal cap, many states have set their own aggregate limits on the total amount you can contribute to a single beneficiary’s 529 plan. These state-imposed ceilings range from $235,000 to $575,000.
The IRS recommends contacting the plan administrator to find out the state program’s contribution limit.
States with the top five total contribution limits
| Stands | Cap |
|---|---|
| Arizona | $575,000 |
| Wisconsin | $567,500 |
| Utah | $560,000 |
| New Hampshire | $553,098 |
| Alaska, Connecticut, Missouri, North Carolina, Vermont, Virginia, West Virginia | $550,000 |
States with the five lowest total contribution limits
| Stands | Cap |
|---|---|
| Georgia, Mississippi | $235,000 |
| North Dakota | $269,000 |
| Hawaii, New Jersey | $305,000 |
| Delaware, South Dakota, Tennessee | $350,000 |
| Montana | $396,000 |
Although the plans are state-sponsored, in most situations you do not have to be a state resident to invest in a 529 plan. It is critical that parents do this check the rules of their specific state’s plan to ensure any limits are adhered to.
Exclusion from gift tax
When you contribute money to a 529 plan, it is considered a gift by the IRS. If the contribution is below a certain limit each year, you do not have to report it to the IRS. By 2024, you can contribute up to $18,000 per beneficiary per year before you need to file IRS Form 709.
Since each donor can contribute up to $18,000 per beneficiary, a married couple can contribute up to $36,000 per child in one year without filing Form 709. If you have two children, each parent can add $18,000 to each of their accounts and still comply with the IRS’s rules.
Even if you exceed the limit in a year, you won’t necessarily have to pay taxes on it. Instead, the excess amount simply counts toward your lifetime exclusion from estate taxes. You would have to give $13.61 million over your lifetime (as of 2024) to raise taxes, so most people won’t come close to the lifetime limit even though Congress can increase or decrease it.
Additionally, the IRS offers a “super funding” option for a 529 plan, which allows you to contribute up to five times the annual exclusion amount in one year – as long as you don’t make additional contributions to the same beneficiary in future years. five years. This avoids gift taxes on $90,000 in 2024 by treating it as if it were contributed over a five-year period.
Other contribution and tax considerations for 529 plans
The 529 plan has become a popular way to save for college expenses – and for good reason. It offers numerous tax benefits.
First, contributions to the account grow tax deferred, and withdrawals are tax free if used for qualified education expenses such as tuition, fees, room and board, and books at qualified educational institutions. Originally designed for college expenses, 529 plans can now be used for K-12 education at private schools and apprenticeship programs.
Funding a 529 plan can provide immediate tax benefits in some cases. More than 35 states offer tax deductions on contributions, but usually only up to a certain amount. Although contributions are made with after-tax money and are not eligible for federal tax deductions, the potential for a state-level tax break can be beneficial.
Almost anyone can open a 529 plan. Parents, grandparents and other relatives can create and contribute to the account. Additionally, individuals can open a plan to finance their own education costs.
Each state plan has different benefits, and it may be worth shopping around and finding the best plan for your family. You will have to look for low costs, solid investment returns and good employment conditions.
Finally, starting in 2024, families can transfer unused 529 plan funds to a Roth IRA in the beneficiary’s name without incurring income taxes or penalties. This new rule, signed into law as part of the SECURE Act 2.0 of 2023, gives families flexibility if a child decides not to attend college or unused funds remain in the account after graduation.
The most important rules apply to the conversion: the 529 plan must be open for at least 15 years before it can be converted to a Roth IRA and there is a $35,000 lifetime limit on rollovers.
In short
A 529 college savings plan offers parents a flexible and tax-advantaged way to save for their children’s education. While there is no federal contribution limit, you should be aware of state-specific ceilings and take into account possible gift tax considerations. By staying informed, you can lay a solid foundation for your children’s educational future.
