Don’t Worry Too Much about the Annual Gift Tax Limit
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By Mark Kantrowitz

October 19, 2020

529 college savings plans don’t really have annual contribution limits. Sure, there’s the annual gift tax exclusion, but don’t let fear of gift taxes stop you from contributing to a 529 plan. Only about 0.2% of taxpayers file a gift tax return each year. Of those gift tax returns, only 0.5% involve paying a gift tax.

Annual Gift Tax Exclusion

Taxpayers are not required to file a gift tax return or pay gift taxes when their total gifts and contributions are less than the annual gift tax exclusion amount per recipient. The annual gift tax exclusion is $15,000 per recipient in 2020 ($30,000 for a married couple giving jointly).

You might reach the annual gift tax exclusion limit if you are trying to save the full college costs for a 4-year private non-profit college. You won’t reach the limit if you are saving for the projected full cost of a public college or university education. Most people aim to save one-third of future college costs and most families fall short of this goal.


5-year gift tax averaging, also called superfunding, allows taxpayers to make a lump sum contribution to a 529 plan of up to five times the annual gift tax exclusion without having to pay any gift taxes. The contribution is treated as occurring over a 5-year period.

Thus, you can contribute up to $75,000 to a 529 plan ($150,000 if married giving jointly) and not owe any gift taxes. You will have to file IRS Form 709, the gift tax return.

Lifetime Gift Tax Exemption

If you give more than this amount, the excess contribution will count against your lifetime gift tax exemption. The lifetime gift tax exemption is $11.58 million in 2020 ($23.16 million for a married couple giving jointly). Most taxpayers are unlikely to ever reach this limit.

Aggregate Limits for 529 Plans Are Lower

You’re more likely to reach the aggregate contribution limits for 529 plans than to have to pay gift taxes on your contributions. The aggregate contribution limit for a 529 plan is $235,000 to $529,000, depending on the state. You can’t make further contributions to a 529 plan after it reaches the aggregate limit, though the 529 plan can continue to earn a return on the investments.

Of course, you could open 529 plans in multiple states, since each state’s aggregate limit does not consider contributions to other states’ 529 plans. The combined aggregate contribution limit for the states that allow non-residents to open a 529 plan is about $19 million.

Very few families hit the aggregate contribution limit for one 529 plan, let alone multiple 529 plans. The average 529 plan account balance is only 6% of the aggregate contribution limit.

A good place to start:

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