So you want to contribute the maximum amount to your child’s 529 plan? Maybe you received a generous inheritance, and want to set aside enough funds to assure your child will be able to attend any college he chooses.
Here’s what the IRS says:
Q. Are there contribution limits?
A. Yes. Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year. For information on a special rule that applies to contributions to 529 plans, see the instructions for Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
In practice, “the amount necessary” varies and is determined by each state-sponsored plan, with amounts ranging from about $335,000 to $400,000. Check out Savingforcollege.com for a complete list of state maximum amounts.
Here is how the New York 529 Advisor-Guided College Savings Plan explains the maximum contribution.
How much can I contribute to my account?
You can contribute on behalf of a beneficiary until the total balance of all Program accounts held for the same beneficiary reaches an aggregate maximum balance, currently $375,000. If there’s more than one account owner contributing for the beneficiary, this is the total for all accounts. Once this limit is reached, you can no longer make additional contributions, but you can continue to accumulate earnings.
Gift and estate tax implications
Since a 529 contribution is treated as a gift to the beneficiary for tax purposes, another consideration for donors is to understand how amounts greater than $14,000 could trigger tax liabilities.
… your contribution qualifies for the $14,000 annual gift tax exclusion and so most people can make fairly large contributions without incurring the gift tax.
For contributions greater than $14,000, 529 plans offer a unique gift-tax exclusion feature.
… Specifically, you can make a lump-sum contribution to a 529 plan of up to $70,000, elect to spread the gift evenly over five years, and completely avoid federal gift tax, provided no other gifts are made to the same beneficiary during the five-year period. A married couple can gift up to $140,000.
A good explanation of the details on how this works can be found at the Ameriprise website.