There are no annual contribution limits for California 529 plans, other than the annual gift tax exclusion and 5-year gift-tax averaging. California 529 plans have a high cumulative contribution limit of $529,000 per beneficiary.
Annual contribution limits
There is no annual limit on contributions to California 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 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 for a single contributor and $150,000 per beneficiary for a couple giving together.
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 a college education in the state. Generally, most states base their aggregate contribution limits on the cost of seven years of postsecondary education.
In California, the aggregate contribution limit is above-average at $529,000. (The average aggregate contribution limit is $402,376.)
Once the 529 plan account balance reaches the aggregate contribution limit, no further contributions may be made. However, the California 529 plan will continue to accumulate earnings.
California’s maximum contribution limit of $529,000 is one of the highest offered by a state. Other states with maximum contribution limits of $475,000 or higher include Alabama, Alaska, Maine, District of Columbia, Idaho, Louisiana, Michigan, New Hampshire, New Mexico, South Carolina, Virginia, Washington, Pennsylvania and New York.
Impact of excess contributions to California 529 plans
Unlike Coverdell education savings accounts and ABLE accounts, which have a 6% excise tax on excess contributions, 529 plans do not have a tax or penalty on excess contributions. Instead, the 529 plan manager will reject excess contributions and return them to the contributor.
Minimum contribution to California 529 plans
The minimum contribution amount for California’s ScholarShare 529 plan is $25 ($15 for payroll deduction).
Tax deductions for California 529 plan contributions
Contributions to California 529 plans are made with after-tax dollars, similar to a Roth IRA.
Contributions to California 529 plans are not deductible on federal or California state income tax returns.
California is one of the few states with a state income tax that does not allow state income tax deductions or tax credits on contributions to the state’s 529 plans. Only nine states have a state income tax but do not provide a state income tax benefit for contributions to the state’s 529 plan, namely California, Delaware, Hawaii, Kentucky, Maine, New Hampshire, New Jersey, North Carolina and Tennessee. Maine previously had a state income tax deduction for contributions to the state’s 529 plan, but it expired in 2015.
California taxpayers can have all or part of their state income tax refund automatically deposited into a California 529 plan. To do so, they should use the ScholarShare routing number (011000028) and the account number for the portfolio. The account number is “CA” followed by the 4-digit portfolio number and the 11-digit account number. The account number can be found on the 529 plan account statement or by logging into the ScholarShare web site. If the account number is less than 11 digits, add zeroes to the front of the number.