529 Plan Contribution Deadline Approaches
Year-end 529 contribution deadlines sneak up on people every single year. As someone who scrambled to make a contribution at 11pm on December 30th once, I’ve learned to pay closer attention. Today, I’ll share the key things you need to know before the calendar flips.
The State Tax Thing
Over 30 states give you a tax deduction or credit for 529 contributions. The limits vary wildly – some states cap it at $2,000, others have no limit at all. But here’s the kicker: most state deadlines are December 31, not April 15 like federal taxes.
That’s what makes the 529 endearing to us procrastinators – you can make a last-minute contribution and get an immediate tax benefit when you file in a few months. But you actually have to do it before midnight on New Year’s Eve. Check your specific state’s rules because a few states have different cutoffs.
A Few Things I’ve Learned the Hard Way
Gift contributions count toward the annual $18,000 gift tax exclusion. Grandparents can chip into grandchildren’s accounts without triggering any gift or estate tax headaches – up to that limit per year, per grandchild.
There’s also this thing called superfunding. You can contribute up to five years’ worth of gifts at once ($90,000) using a special election. Front-loads the account for maximum compound growth. I know people who did this when their kids were born and basically never contributed again.
And here’s a newer wrinkle that changes the calculus: unused 529 funds can now roll over to Roth IRAs under rules passed in 2022. So if you’re on the fence about contributing because you’re not sure your kid will go to college, there’s now a backup plan. The money doesn’t have to be wasted. Probably should have led with that, honestly.
