529 Contribution Limits for Married Couples

529 Contribution Limits For Married Couples

If you’re eager to save money for your child’s college education and you have the means to make a large contribution to their 529 accounts, should you? Can you? You may also be wondering if there are 529 contribution limits for married couples. Here are some answers to help you make the best financial decision for your family.

There is a cap to the amount of money beneficiaries can have in their accounts, and large contributions may be subject to a federal gift tax.

For married couples, each partner can contribute up to the annual gift tax exclusion limit to a 529 plan each year. For 2022, that’s $16,000 per child, per parent. It is possible to make larger contributions, depending on your financial circumstances.

Contribution Limits for Your College Savings Plan

There are limits to the amount of money a family can keep in a 529 college savings plan. Since 529 plans are only meant to pay for education, the federal government requires states to set limits to prevent people from overfunding their accounts. Every state sets its own limits; based on a calculation of possible projected education expenses within the state.

NC 529 Contribution Limits

As of 2022, the maximum amount a beneficiary can have in an NC 529 Account is $500,000. This is based on four years of undergraduate and three years of graduate or professional study at the most expensive institutions in North Carolina.

Most families will not need to save $500,000 for a single child to go to college, but it’s always a good idea to set your own college savings goals. You can also use the NC 529 College Savings Calculator to estimate how much you’ll want to have available when it’s time for your child to head off to college. The calculator allows you to search by public and private schools, adjust financial goals based on your child’s age, and more.

529 Contribution Limits for Married Couples

One parent can contribute $16,000 a year to a child’s NC 529 Account. A married couple can contribute $32,000 to a single account. This is per beneficiary, so a married couple could contribute $32,000 a year to each of their kids’ accounts. Other contributors, like the beneficiary’s grandparents, can still contribute to the accounts. They are subject to the same limits.

Federal Gift Taxes

The reason there is a $16,000 contribution cap per person, and a $32,000 cap per married couple, is because contributions to an NC 529 Account fall under federal gift tax rules.

What is a Gift Tax?

A federal gift tax is applied to anyone who gives a large sum of money or valuable gift to someone else. For 2022, the gift tax is applied to anything over $16,000 from one person; or $32,000 from a married couple.

There is a lifetime gift tax exclusion — the amount one person can give without paying taxes over the course of their lifetime. In 2022, this exclusion is $12,060,000.

How to Avoid Gift Taxes

If you want to contribute more money to someone’s education fund without triggering the gift tax, there are a few ways to do so.

Parent, grandparents, or anyone else can pay for the recipient’s education directly by paying the school. Payments to a college or an institution are typically not subject to a gift tax. However, this does not allow you to save funds for education in a tax-free growth plan.

To maximize tax-advantages and avoid gift taxes, parents, grandparents, and other loved ones can make large contributions to the child’s NC 529 Account every year if they want. As we mentioned above, this is $16,000 for a single person and $32,000 for married couples. This could allow the funds to grow over time and won’t be subject to taxes if the money is used for eligible education expenses.

Superfund Your 529 Account

As the contributor to a 529 account, you also have the option to “superfund” the account — make five years’ worth of contributions at once while still qualifying for the gift tax exclusion. In other words, you can invest $80,000 toward an NC 529 Account (or $160,000 for a married couple) without triggering the gift tax. The only catch is that you can’t make any other contributions to the same account for the next five years without paying the gift tax.

Benefits of Superfunding Your 529 Account

In general, the earlier you put money into a 529 account, the more potential it has to grow. When you contribute the same amount at once that you plan to contribute over the course of several years, you give the fund potential to reach a larger amount.

Robert Farrington, a personal finance expert and senior contributor for Forbes.com, explains the benefit of superfunding an account in his article Should You Superfund Your Child's 529 Plan?:

Imagine for a moment you have the means to superfund your child’s account with $75,000 in cash the moment they’re born. If you made no more contributions and the account earned 6 percent when compounded annually for 18 years, your child would approach their college years with $214,075.44 in their 529 account. If you saved up the same amount the slow way, on the other hand, your earnings wouldn’t be nearly as high. Let’s imagine you deposited $4,167 into a 529 account the moment your child was born and deposited $4,167 each year for the next 17 years. If you achieved the same 6 percent return during that time, your child would approach college age with $128,783.85 saved for higher education expenses.

Why Not to Superfund a 529 Account

It’s not always a great idea to superfund an NC 529 Account. You will incur penalties if you end up having to take out the money for any reason besides education. If paying a large amount into an NC 529 Account puts you behind with other savings goals (or current payments and bills), that probably means you can’t afford it.

Keep in mind, having an NC 529 Account is meant to make education a reality. It is meant to take away the stress of paying for college, not to be a financial burden itself.

Start Saving Now

You don’t need to make the maximum contribution to start saving for college. You only need $25 to put into an NC 529 Account to start saving, and there are no additional enrollment fees. Whether you choose to superfund the account or make regular monthly contributions through your checking account or payroll deduction, how you fund your account is up to you.

Click here to create an NC 529 Account on CFNC.org.

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