There are no annual contribution limits for Massachusetts 529 plans, other than the annual gift tax exclusion and 5-year gift-tax averaging. Massachusetts 529 plans have a high cumulative contribution limit of $400,000 per beneficiary.
Annual Contribution Limits
There is no annual limit on contributions to Massachusetts 529 plans, just like other 529 plans, but contributions in excess of the annual gift tax exclusion of $15,000 per beneficiary ($30,000 for a couple giving jointly) may be subject to gift taxes or use up the lifetime gift tax exemption if the contributor does not elect to use 5-year gift-tax averaging. If the contributor elects to use 5-year gift-tax averaging, the limits are $75,000 per beneficiary ($150,000 for a couple giving jointly).
Gift taxes, if any, are paid by the contributor, not the account owner or beneficiary.
Aggregate Contribution Limits
Each state sets its own aggregate contribution limit, based on the cost of an undergraduate and graduate education in the state. The aggregate contribution limits are usually based on the cost of 7 years of postsecondary education.
The aggregate contribution limit in Massachusetts is $400,000. That’s about the same as the $402,376 average of all state aggregate contribution limits.
After the 529 plan account balance reaches the aggregate contribution limit, no further contributions may be made. Excess contributions will be rejected and returned to the contributor. (This is in contrast to ABLE accounts and Coverdell education savings accounts, which have a 6% excise tax on excess contributions.) However, the Massachusetts 529 plan will continue to accumulate earnings after reaching the aggregate contribution limit.
Minimum Contribution to Massachusetts 529 Plans
The minimum contribution amount for Massachusetts 529 plans is $15.
Tax Deductions for Massachusetts 529 Plan Contributions
Contributions to Massachusetts 529 plans are made with after-tax dollars, similar to a Roth IRA.
Contributions to Massachusetts 529 plans are tax-deductible on Massachusetts state income tax returns.
Massachusetts provides a state income tax deduction of up to $2,000 per year (married filing jointly) and $1,000 per year (single filers). Contributions beyond the tax deduction’s annual limit cannot be carried forward to future tax years. The state income tax deduction is in effect from 2017 to 2021, inclusive.