How to Gift to a 529 Plan: Understanding Deadlines, Limits, and Taxes

Everyone has someone in their family who’s tricky to shop for. Maybe they already have a lot of stuff, or they have specific tastes. No worries, we have the best kind of present that few people could refuse — a contribution to their education. It’s thoughtful, comes in all sizes, and is a gift they’ll never outgrow.

With as little as $25, you can pitch in to the NC 529 education savings account of anyone — from a preteen grandchild to a best friend’s newborn baby. Contributions — which can grow tax-free over the years — can be used for tax-exempt qualified education expenses, including K–12 and college tuition, room and board, career/technical programs, and more.

To keep the good news coming, NC 529’s gifting option makes it easier than ever to give the gift of education. Here’s the latest rundown of how to give the gift to a 529 plan, contribution limits, and a few other rules to know.

Who Can Own the NC 529 Account?

Anyone can start and own a 529 Account — grandparents, students, aunts, uncles, and more. But students, parents, and grandparents are the most common account holders. Most NC 529 Accounts are opened by parents or grandparents on behalf of a child. Typically, this is done before the child is in college, but not always. We like to say it’s never too early or too late to start saving for college.

Many grandparents are concerned about how to help children and grandchildren financially. Financial planners recommend grandparents gift money to 529 accounts when looking for gifts or ways to contribute to K–12 and college. It can be a way for grandparents to give a gift that keeps on giving.

However, depending on who the owner of the account is, there can be different impacts on financial aid eligibility.

New Rule Change Means More Flexibility for Givers

Thanks to the FAFSA Simplification Act, grandparents and other extended family members can contribute to a child’s education without impacting their financial aid. The new rule, which goes into effect in the 2024-2025 school year, removes penalties on outside contributions to 529 plans and does not impact the beneficiary’s future eligibility for financial aid. In fact, the question about outside contributions will be removed from the simplified FAFSA altogether. Here’s how different owners of accounts may or may not impact financial aid under the new rule.

NC 529 Accounts owned by grandparents: Starting with the 2024-2025 school year, qualified distributions from a grandparent-owned or any third-party-owned 529 plan (friends, aunts, uncles or a person other than the student or their parent(s)) are not reported as student income, which means they won’t be factored into the student's income on the FAFSA.

NC 529 Accounts owned by parents or students: If the plan is under the student's or parent's name, withdrawals used for the current year's college costs do not count as part of the "base-year income," which could otherwise lower the student's financial aid eligibility. If parents are divorced or separated, the financial aid application should be filed by the parent who primarily supports the student financially, and only the 529 account of that parent will affect the FAFSA. The 529 account owned by the non-custodial parent is not included.

Limits & Deadlines

The most that any individual can donate to a 529 plan as of 2024, is $18,000 per year. After you give more than $18,000 to one 529 plan, you will activate a gift tax. A federal gift tax means that you will be taxed on the transfer of funds that you, as the contributor, make. To avoid this gift tax, which could be up to 40%, simply make sure that your contributions amount to less than $18,000 per year. Married couples who are giving jointly can give up to $36,000 per year without incurring a federal gift tax.

When it comes to deadlines, there are none! Anyone can gift to 529 plan at any time. The contribution simply has to be $25 or more. If you make the maximum contribution in a year, then you won’t be able to contribute anymore that calendar year. Currently, the total maximum lifetime limit is $550,000 for each Beneficiary per year. This cap includes all accounts opened for the same beneficiary.

A way to get the best “bang for your buck” can be to superfund an NC 529 Account. “Superfunding” is essentially the same as “front loading” an account. The concept of superfunding involves making substantial, upfront contributions to a 529 account that are spread over a five-year period for gift tax purposes. This tactic is a way for benefactors to boost a beneficiary's education fund while reducing the taxable value of their estate.

Are My Contributions to an NC 529 Account Tax Deductible?

Currently, there are no federal tax deductions for contributions made to 529 accounts, but remember that the beneficiaries of your contributions will be able to make federal and state tax-free withdrawals to pay for education expenses, such as college tuition, assistive learning technology, and so much more. The state of North Carolina also does not offer in-state tax deductions for contributions to NC 529 accounts. Just remember that the sooner you contribute to an account, the more time that investment has to grow.

How to Give a Gift to a 529 Plan

Want to know how to contribute to a 529 plan, or how to help someone to contribute to yours? The gift of a more affordable education now just takes a few simple steps online!

To provide a unique gifting link to someone, just click here, scroll down, and follow the instructions listed. If you’re the one trying to give, ask the recipient of your gift to log into their NC 529 Account and follow the same instructions listed on the linked page above. Keep in mind that you can use a bank account, credit or debit card, or a digital wallet such as Apple Pay to contribute to someone’s account. Better yet, there are never any deadlines for giving to an NC 529 Account. Get more answers to your questions with our new FAQ section specifically for gifting.

Still have questions? Check out this quick video to learn all about how to gift to 529 Plan:

Open an NC 529 Account

By giving to the 529 Account of extended family, friends, or anyone with educational dreams, it’s super easy to make someone’s day and make their child’s life easier in the future with a tax-advantaged education savings account.

Got $25 to spend right now? Use it to make the first contribution to your own NC 529 Account. Open an NC 529 Account today in just minutes!