Superfunding 529 Plan Contributions

February 01, 2024

Although 529 plans have been around for almost thirty years, many fail to appreciate what a powerful financial planning tool they can be. 529 plans are to college what Roth IRAs are to retirement—an effective and tax-efficient strategy for pursuing a long-term goal. Like a Roth, the money invested in a 529 plan grows tax-free, and can be withdrawn tax-free, as long it’s used only for higher education costs. But 529 plans can be much more.

To the IRS, money contributed to a 529 plan account is deemed a completed gift to the beneficiary. That money is no longer in your estate; as such, it is no longer subject to estate taxes. But unlike most “completed gifts,” you retain control over money you’ve contributed to a 529 plan account: you decide how it’s invested, when it’s withdrawn, and who the beneficiaries are. You also retain the right to change the beneficiary whenever you want. You can likewise designate a successor owner, who will take ownership of the account when you die. The money is as close to being yours as possible without it sitting in your estate.

But the real magic of 529 plans happens when you consider “superfunding.” This refers to the ability to use 5-year gift tax averaging when funding a 529 account. According to section 529(c)(2)(B) of the Internal Revenue Code, “If the aggregate amount of contributions [to a 529 plan account] during the calendar year by a donor exceeds the [annual gift tax exclusion amount], such aggregate amount shall, at the election of the donor, be taken into account … ratably over the 5-year period beginning with such calendar year.”

Stated in simple English, this means you can front-load contributions to a 529 plan account with up to 5-years’ worth of the annual gift tax exclusion without impinging on your lifetime gift tax exclusion.

This is a huge opportunity for those with significant assets seeking to fund education—or to simply move money from their estate very quickly. For example, in 2024, the annual gift tax exclusion is $18,000. Two grandparents could move $180,000 out of their estate into a 529 plan account for each of their grandchildren literally overnight. If they have 10 grandchildren, that is $1.8 million out of their estate without affecting their other gift tax planning. Note that you can open a 529 plan account with anyone named as beneficiary, not just family members.

To unlock superfunding, you must contribute more than the annual gift tax exclusion to a 529 plan account within a given year. Once you do, you have a choice: do five-year averaging of your total contribution (i.e., take 20 percent of it each year for the next five years, against your annual gift tax exclusion), or take the annual exclusion for the year, applying whatever remains against your lifetime exclusion amount. Either way, you will need to file Form 709: Gift Tax Return. If you and your spouse both superfund 529 plans, you will each need to file this form.

Maxing out superfunding in a given year doesn’t prevent you from making future contributions. The annual gift tax exclusion amount typically increases from year to year. If it does, you can make additional contributions to “fill up” your annual gift tax exclusion bucket. For example, the annual gift tax exclusion amount in 2023 was $17,000 before increasing to $18,000 this year. If you had done maximum superfunding in 2023—$85,000 (5 x $17,000)—the new gift tax exclusion limit allows you to contribute another $1,000 in 2024.

As you consider superfunding, remember that your limits may vary, depending on other gifts you make to the beneficiary during the funding year. Maximum superfunding may also preclude you from making other tax-free gifts to the beneficiary within the 5-year superfunding period.

One final note: you must live until January 1 of the fifth calendar year of your superfunding period to get the full 5-year annual exclusion. If you die before then, 20% of your total superfunded amount will be included in your taxable estate for each year you fell short of the full five years.


Please see important disclosure information here.

Steven C. Merrell MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey. He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to