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What are the annual contribution limits for 529 Plans and what is superfunding?

Child saving money in piggy bank to add to their 529 plan to save for college

It’s no secret that the cost of education is on the rise. The key to preparing for this large but important expense, is to develop a savings strategy early on. As we discussed in a previous Q&A on 529 College Savings Plans, these plans are state-sponsored, tax-advantaged, education savings investment accounts. A key benefit is that contributions grow tax-deferred and are distributed without any tax implications when used for qualified education expenses.


There is no set limit on contributions at the Federal level. However, each state may impose limitations. If your account value reaches the state’s specified threshold (between $235,000 and $550,000), you may be unable to make further contributions. In addition, contributions to 529 Plans are considered completed gifts for federal gift tax purposes. As completed gifts, the current annual gift tax exclusion amount of $16,000 applies. This amount is per donor, per beneficiary. Any amount over the annual gift tax exclusion amount will reduce a taxpayer’s lifetime estate and gift tax exemption amount (currently $12.06 million). However, “superfunding” a 529 Plan can help you avoid reducing your lifetime gift tax exemption amount.


Superfunding, or frontloading, a 529 plan involves contributing 5 years’ worth of annual gifts in one tax year. For example, you can gift $80,000 per beneficiary and file a gift tax return electing to have this contribution treated as having been made evenly over 5 years. As a married couple filing jointly, you can contribute up to $160,000 total if you elect to split the gift. In doing so, the contribution will not reduce your lifetime gift tax exemption amount. Granted, this is provided no additional 529 Plan contributions are made for this beneficiary in the following 5 years if you contribute the full $80,000.

The purpose of superfunding is to take advantage of the time value of money. In other words, putting the investment to work for as long as possible before the beneficiary makes their first withdrawal for their education. Additionally, this is often a beneficial estate-tax planning strategy as the donor is able to remove assets from their estate without using any of their lifetime estate tax exemption amount. In addition, they can still maintain some control over the use of the funds. Superfunding is not appropriate for everyone, but it can be a powerful strategy to consider and implement when appropriate.


If the beneficiary does not go to college, you may either withdraw the money, save the funds for future use, or transfer the 529 Plan to a different beneficiary. There is no time limit on using the funds, but non-qualified withdrawals may incur a 10% penalty and income taxes. Luckily, any penalties and taxes only apply to earnings since contributions are made with after-tax dollars. If you would like to avoid penalties and taxes, then transferring the funds to an eligible family member may be appropriate.


College planning involves more than working towards high GPAs and SAT/ACT score. Tax-smart savings strategies are also critical to start saving early and reduce or eliminate college loans. 529 Plans can be an integral part of these strategies. We recommend talking with your Wealth Management Advisor or our Tax & Financial Planning team to determine if a 529 Plan is right for you!

Author: Alexis Houlihan, CFP® | Financial Planning Advisor
Written: August 21, 2022