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How Much Can You Contribute to a 529 Plan In 2022?
529 Plans are an invaluable tool to help save for college, so it’s important to understand their contribution limits. 529 Plans are unique because they can qualify you for a wide spread of tax benefits. These benefits can come from federal and state tax exemptions. Here are the overall 529 Plan contribution limits, as well as the limits for each of the benefits it can provide.
Related: What is a 529 Plan?
Limits on total balance
The total balance of a 529 Plan cannot exceed the projected total costs of the beneficiary’s higher education. This includes the cost of tuition, books, room, and board. Higher education can include both an undergraduate and a graduate degree. Each state calculates its own projected cost, and they are typically over $220,000. If your balance is getting close to $220,000, you should check your state-specific limit.
This total limit typically does not inhibit anyone from contributing. Because 529 Plans only provide tax benefits for educational expenses, there is no incentive to exceed the contribution limit. However, if you do approach the limit, don’t worry about exceeding it. It’s no cause for concern if your last contribution puts you over the limit. You’ll be able to keep that extra money in the account, but you won’t be able to contribute any more.
Don’t miss: How much to save for college
Yearly contribution limits
529 Plans do not have an annual contribution limit. You can contribute as much as you’d like to a 529 Plan per year, but there are some caveats. If you contribute an especially large sum in one year, you may lose eligibility for some tax benefits. Here is a rundown of how those benefits work.
Learn more: How to choose a 529 Plan
The gift tax exclusion
You can claim 529 Plan contributions under the gift tax exclusion using Form 709. This exclusion renders contributions exempt from federal taxes. But it should be noted that this exclusion has a $15,000 annual limit. If you exceed this limit, your excess funds will count against your lifetime estate and gift tax limit. However, this limit is set at $11.58 million, so if you are not in danger of exceeding it, don’t worry. Your gift will still be exempt from federal taxes.
You can also contribute up to $75,000 in one year without exceeding your yearly limit if you utilize 529 superfunding. This allows you to max out your contributions for the next 5 years all at once. This tool is commonly used in making plans for someone’s estate.
Read more: How much is the 529 tax deduction worth?
State income tax benefits
Each state offers income tax benefits for 529 Plan contributions. Contributions made to a 529 Plan can be deducted from state taxable income up to a certain yearly limit. This amount varies by state; in Illinois, it is $10,000, but in Iowa it is only $3,474. These state benefits are independent of federal tax benefits.
Read more: What are the 529 Plan rules?
Next steps for students and parents
We suggest being strategic about your 529 Plan deposits. It’s a good idea to make your deposits over a long period of time in order to enjoy all of the plan’s tax benefits. This allows you to preserve your lifetime estate and gift tax limit, and to claim your maximum state income tax deductions. The overall limit on your account sum should not inhibit you; it should be able to cover all of your educational expenses. Good luck and happy saving!
Frequently asked questions about 529 contributions
Does contributing to a 529 reduce taxable income?
529 contributions are never deductible on your federal taxes, but you might be able to deduct them from your state taxes. You’ll have to check your specific 529 plan servicer to find out if you can make any state income tax deductions. Each state sets different rules, so they will have the most current and relevant information.
How much can I contribute to my grandchildren’s 529 plan?
As a grandparent, you might be wondering if you are subject to other 529 contribution limits. Luckily, when it comes to 529 plan contributions, grandparents are in the exact same boat as parents.
You can contribute as much as you’d like, although the account balance cannot exceed the total cost of a four-year education. If you are using the Gift Tax exclusion, keep in mind that you’ll have a $15,000 annual limit, unless you utilize superfunding. Check the information above for clarification on Gift Tax annual limits.
Is food in college a qualified 529 expense?
You can use 529 funds for room and board, which includes food, as well as other food expenses, as long as the student is enrolled at least half-time. So, for students who are studying at least half-time, food is a qualified 529 expense.
This article is providing general information regarding 529 College Savings Accounts. You should always speak with your accountant or financial planner to discuss your specific situation when determining contribution amounts or tax benefits.