529 Plan Contribution Limits for 2022
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Unlike with 401(k) plans and other retirement savings accounts, the IRS does not set annual contribution limits for 529 college savings plans. Instead, the states that sponsor individual 529 plans set parameters for the life of the plan. It’s imperative that you and your family know and understand these limits, as surpassing them could result in hefty tax penalties. Therefore, just like any financial move, planning ahead for your 529 plan is incredibly important.
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529 plan contribution limits by state
Contribution limits for 529 plans range from around $235,000 on the low end to more than $550,000 per beneficiary. Although these may seem like high caps, the limits apply to every type of 529 plan account you open per child. The table below illustrates the current 529 plan contribution maximums by state:
Here’s how the above limits work: Let’s say you open a direct-sold 529 plan and an advisor-sold 529 plan sponsored by New York for your child. The contribution limits in New York are set at $520,000.
This means your combined contributions toward both plans can’t exceed that amount for each child, or beneficiary. This maximum applies to the total contributions you make the entire time you invest in 529 plans. It’s not an annual contribution limit, like the kind you’d see with retirement plans. However, your balance can still grow past the contribution limits through investment returns.
529 plan tax benefits by state
Some states that sponsor 529 plans let you make tax-deductible contributions or receive tax credits up to certain limits. Some even allow you to make tax-deductible contributions up to their 529 plan contribution limits.
Seven states allow tax-deductible contributions into 529 plans sponsored by any state. They are Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania.
Some states, however, don’t allow tax-deductible contributions even though they levy state income tax. They are California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina.
Still, 30 states and the District of Columbia allow some kind of tax deduction.
529 plans and the annual gift tax exclusion
The IRS treats contributions toward 529 college savings plans as gifts for tax purposes. In 2022, however, individuals can gift up to $16,000 a year to any other individual without needing to report the funds to the IRS for purposes of a gift tax.
529 plans do, however, offer a little bit of wiggle room beyond this figure. Individuals can put up to $80,000 into a 529 plan over a five-year period while still having that money excluded from the gift tax. Married couples filing jointly can do the same for up to $160,000. However, they’d need to put a hold on making further contributions for five years.
You can make contributions between $16,000 and $80,000, and those funds will be prorated through five years. So you can transfer $50,000 in one year and the IRS will treat it as $10,000 contributed per year over five years. Therefore, you can make additional transfers of up to $5,000 each of those years and still avoid gift tax.
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529 contribution limits and the lifetime gift exemption
Let’s say you contribute more than $80,000 over five years. That doesn’t necessarily mean you’ll be hit with a gift tax. You’ll simply have to report any gifts above the annual exclusion amounts on your federal tax Form 709.
In turn, those total contributions will be calculated as part of your lifetime exclusion. For 2022, this number is $12.06 million for individuals and $24.12 million for couples. If you do happen to give more than that limit, you could incur a gift tax of 40% for the excess amount.
States set large contribution limits for 529 college savings plans. And any U.S. citizen can open an account with a 529 plan sponsored by any state. But limits peak high across the country. So 529 contribution limits shouldn’t be the deciding factor when shopping around for a 529 plan to fund your child’s educational future.
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Javier Simon, CEPF® is a banking, investing and retirement expert for SmartAsset. The personal finance writer's work has been featured in Investopedia, PLANADVISER and iGrad. Javier is a member of the Society for Advancing Business Editing and Writing. He has a degree in journalism from SUNY Plattsburgh. Javier is passionate about helping others beyond their personal finances. He has volunteered and raised funds for charities including Fight Cancer Together, Children's Miracle Network Hospitals and the National Center for Missing and Exploited Children.