A 529 plan is the ideal way to save for college. It’s a tax-advantaged account that can help cover the cost of tuition, books, room and board, and other qualifying expenses. Compared to other college savings options, a 529 plan offers large contribution limits. Therefore, it’s no surprise that opening one is a common college saving tip

So what are 529 plan contribution limits? Since each state operates its own 529 plan, maximum contribution limits are not determined by the IRS. Instead, they vary across states. Let’s take a closer look at 529 contribution limits so you can figure out how much money you can allocate toward a college education for your child, grandchild, or anyone else in your life.  

529 Plan Aggregate Limits 

529 plans differ from 401(k)s and IRAs because there are no annual 529 plan contribution limits. However, there are maximum aggregate limits which vary by state. These limits apply to the total balances of all 529 plans in a specific state for the same beneficiary over the life of the accounts. The cost to attend an expensive four-year college and graduate school in each state help determine these limits. 

For 2020, the minimum limit of $235,000 per beneficiary is found in states like Georgia and Mississippi. North Dakota is also on the lower end with $269,000. Michigan, Idaho, Louisiana, South Carolina, Washington, and Washington DC offer high contribution limits of $500,000 per beneficiary. 

Some of the highest 529 plan contribution limits, however, can be found in Pennsylvania, New York, and California, where they are $511,758, $520,000, and $529,000 respectively. Once the combined 529 balances for a 529 plan reach the aggregate limit, additional contributions can not be made. The only exception to this rule is if a drop in the market brings the account balance back down. 

Keep in mind that the state you’re investing in, rather than the state you live in will dictate your 529 plan aggregate limit. Therefore, you may invest money in a high-limit state like New York, even if you live in a low-limit state such as North Dakota. Also, states often change their limits as college becomes more expensive so it’s important to review them on an annual basis. 

 

Gift Tax Issues 

Although a 529 plan can allow you to save multiple six figures for college, you may face a complication if you add funds too quickly. The “gift tax” limits how much money can transfer from one individual to another. 

While U.S.-citizen spouses are free to gift one another unlimited amounts, 529 plan contributions for a child, grandchild, niece, or friend may be considered gifts. Depending on their value, these gifts can impact your tax situation. 

In 2020, any monetary gift you make of up to $15,000 per individual makes you eligible for the annual gift tax exclusion. So if you and your spouse have two children, you can jointly give them $30,000 without having to worry about any gift-tax consequences. It’s important to note that the annual gift tax exclusion considers the total of all gifts, not just 529 plan contributions. For this reason, property gifts and cash must be included too. 

What happens if your total gifts are more than $15,000 per individual this year? The excess amount will apply toward your lifetime excess state and gift exemption. You’ll also have to report it on Form 709 at tax time. Fortunately, you won’t have to pay federal estate or gift tax unless you gift more than $11.58 million over your lifetime so this probably won’t be an issue. 

5-Year Election 

The 5-year election states that you can contribute up to $75,000 to a 529 plan as an individual if you treat the contribution as if it were spread over 5 years. You’re required to report the 5-year election on Form 709 for each of the 5 years. 

Let’s say, you open a 529 account, contribute $70,000 in 2020, and apply it as $14,000 per year. By front loading the plan, you can use compound interest to your advantage and allow the fund to earn more money over time. If you go this route, however, you won’t be able to contribute more money or take money out until the five year period is up. 

Once five years has passed, you’ll have the opportunity to contribute another $75,000 for the next five years if you’d like. If both you and your spouse decide to contribute, your total limit would be $150,000 for each five year period. This strategy can expedite your college savings goals and ensure all college-related expenses are covered when the time comes.

Closing Thoughts

While there are technically 529 plan contribution limits, it’s very difficult to reach them.  Even with the limits, 529 plans can make it easy for you to save a significant amount of money for college. Ready to open a 529 plan and start saving for your child’s college education? Download our easy-to-use app today! Our app makes the entire process a breeze!

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.