![]() ![]() First, we provide paid placements to advertisers to present their offers. This compensation comes from two main sources. To help support our reporting work, and to continue our ability to provide this content for free to our readers, we receive compensation from the companies that advertise on the Forbes Advisor site. The Forbes Advisor editorial team is independent and objective. USAA 529 Education Savings Plan: $500,000 Vanguard 529 College Savings Plan: $500,000 In Massachusetts, for example, savers can deduct only $1,000 in 529 contributions ($2,000 for a married couple filing jointly), while in Colorado, the 2023 limit is $20,700 ($31,000 for joint filers). It’s useful to check just how much you could save with that tax break, though, since states often impose limits on the amount in 529 plan contributions you can claim as a deduction or credit.Ī common limit is $5,000 in tax-deductible contributions per year ($10,000 for a married couple filing jointly), but it can vary. You can opt for a 529 plan offered by any state, but you may benefit from a tax deduction or credit if you choose certain states’ options. If you reach the limit, your money will stay invested and continue to have the potential to grow over time. The aggregate limit is usually quite high-$500,000, for example-and can help you avoid overfunding a beneficiary’s account(s) beyond what your family can reasonably expect to pay in education expenses. That means you can only contribute up to a certain maximum amount per beneficiary. While 529 plan vendors don’t limit you to a certain amount you can save per year, they will institute an aggregate limit. That amount will be treated as having been contributed over a five-year period, which means avoiding gift tax and the gift tax return on up to $85,000 (or $160,000) in contributions in one year. Plus, there’s an additional workaround: You can contribute up to five years’ worth of the gift tax exclusion in one year-up to $85,000 total in 2023, or $170,000 for married taxpayers filing jointly. In 2023, you can contribute up to $17,000 to a 529 plan ($34,000 as a married couple filing jointly) and qualify for the annual gift tax exclusion, which lets you avoid the gift tax. But if the gift amount falls under a certain threshold, you are exempt from gift tax and the need to file a gift tax return. Federal Gift Tax LimitsĬontributions to a 529 plan qualify as a gift, according to the IRS, which could trigger the need to file a gift tax return and potentially pay tax on the amount you’ve contributed. There are also other limitations that may affect your tax burden that you should be aware of. You may save as much as you want on an annual basis, though each 529 plan has a total lifetime contribution limit. 529 Plan Contribution LimitsĪn important feature of 529 plans, which sets them apart from other investment accounts like Roth IRAs, is that there is no annual contribution limit. Plans offer age-based investment portfolios that can help you determine the right mix of investments according to the beneficiary’s expected college start date. Investing money rather than setting it aside in a traditional savings account means you’re more likely to experience growth over time due to market conditions. You can save in a 529 plan no matter your income. You’re free to choose any 529 plan across the country, even if you don’t live in the state that offers it. To set up a 529 college savings account, the account owner-say, a parent-will choose a plan and a mixture of investments, then make regular contributions that will eventually be withdrawn to pay college costs for the beneficiary (in this case, their child). Many states also offer state tax credits or deductions for 529 contributions. Contributions are made post-tax when you withdraw earnings from a 529 plan to pay qualified education expenses, that money is not subject to tax. 529 plans are investment accounts, often offered by individual states, that let your money grow tax-free as long as you use the cash for eligible expenses. ![]()
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