Each state has a maximum aggregate contribution limit per beneficiary. Aggregate 529 plans limits apply to all 529 plans administered by a specific state and range from $235,000 to $529,000. The limit is intended to cover the cost of attending an expensive college and graduate school in the state. Per IRS rules, a 529 program must provide “adequate safeguards” to prevent contributions beyond what is needed to pay for the beneficiary’s future education costs. 

Annual 529 plan contribution limits

529 plans do not have annual contribution limits. However, contributions to a 529 plan are considered completed gifts for federal tax purposes, and in 2019 up to $15,000 per donor, per beneficiary qualifies for the annual gift tax exclusion. Excess contributions above $15,000 must be reported on IRS Form 709 and will count against the taxpayer’s lifetime estate and gift tax exemption amount ($11.58 million in 2020).

There is also an option to make a larger tax-free 529 plan contribution, if the contribution is treated as if it were spread evenly over a 5-year period. For example, a $75,000 lump sum contribution to a 529 plan can be applied as though it were $15,000 per year, as long as no other gifts are made to the same beneficiary over the next 5 years. Grandparents sometimes use this 5-year gift-tax averaging as an estate planning strategy.

Aggregate 529 plan limits

Each state sets an aggregate limit for 529 plan balances. This limit applies to the total balances of all 529 plans administered by a particular state for the same beneficiary over the life of the accounts. The limits are based on the price to attend an expensive 4-year college and graduate school in that state. 

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Once the combined 529 plan balances for the beneficiary’s in-state 529 plans reach a state’s aggregate limit, no additional contributions can be made to any 529 plan administered by that state. The accounts will not be penalized if investment earnings push the balance over the limit, but no additional contributions can be made unless the combined 529 plan balances drop below the limit. For example, this could happen if the investments in the 529 plan drop in value or the 529 plan account owner takes a distribution. 

Families may be able to contribute beyond a state’s aggregate limit by contributing to another state’s 529 plan. IRS regulations do not prohibit a beneficiary from having accounts in different states with a combined balance that exceeds a state’s aggregate limit. But, any amount above the state’s aggregate limit must be an appropriate amount to cover a beneficiary’s future higher education needs.

States with the highest aggregate limits

State

Aggregate limit

California

$529,000

New York

$520,000

Pennsylvania

$511,758

District of Columbia, Idaho, Louisiana, Maine, Maryland, Michigan, Nevada, New Hampshire, New Mexico, South Carolina, Virginia, Washington

$500,000

Arizona

$494,000

Source: Savingforcollege.com research

States with the lowest aggregate limits

State

Aggregate limit

Missouri

$325,000

Hawaii, New Jersey

$305,000

Connecticut, Oklahoma

$300,000

North Dakota

$269,000

Georgia, Mississippi

$235,000

Source: Savingforcollege.com research

View the full list of maximum contribution limits by state here

Limits on 529 plan state income tax benefits

Over 30 states offer a state income tax deduction or state income tax credit for 529 plan contributions. In most states, residents must contribute to an in-state 529 plan to be eligible for a state income tax benefit. However, in Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania, contributions to any 529 plan qualify for an annual state income tax benefit.

In Colorado, New Mexico, South Carolina and West Virginia, 529 plan contributions are fully deductible from state taxable income. Other states limit the amount of contributions that are eligible for a state income tax benefit. For example, in Pennsylvania, residents may deduct 529 plan contributions up to the amount of the annual gift tax exclusion ($15,000 in 2019) from Pennsylvania taxable income each year. In Massachusetts residents may only deduct up to $1,000 per year of 529 plan contributions from Massachusetts taxable income.

Some states allow taxpayers to carryforward excess contributions for state income tax purposes. For example, Louisiana, Ohio, Rhode Island, Virginia and Wisconsin allow carryforward of excess contributions for an unlimited number of years. So,

if Ohio parents want to contribute more than their state’s annual limit of $4,000 per beneficiary, they may deduct the excess in future years in increments of $4,000 per year, until the entire contribution amount is deducted. Maryland allows carryforward for up to 10 years, while Arkansas, Connecticut, Oklahoma, Oregon and Washington DC allow it for 4 or 5 years.

But, other states do not allow carryforward of excess contributions for state income tax break purposes. For example, Illinois provides an annual state income tax deduction for joint contributions of up to $20,000, without carryforward of excess contributions. If a married couple were to contribute a lump sum of $75,000 to an Illinois 529 plan using 5-year gift-tax averaging or to contribute $15,000 each to the 529 plans of two beneficiaries, they could only deduct $20,000 from Illinois taxable income. They would not be able to claim a state income tax deduction on the remaining contribution amount in future tax years. This provides a disincentive to making a lump sum contribution.

View a list of each state’s income tax benefit limits here

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