There are plenty of reasons to love the 529 plan; between the tax advantages, investment opportunities, and wide variety of options, these accounts can make for powerful financial tools when used properly, but they also come with a few restrictions on how funds are used or how large a balance can grow while still allowing contributions. Although most of these restrictions work the same way regardless of what state administers your 529 plan, some of the details change as you cross state lines, including what a particular plan sets as its maximum contribution. If you have opened or are considering opening one of these accounts with The Ocean State, you might like to know, “What is the maximum contribution to a 529 plan in Rhode Island?” To find out, keep reading as we discuss this important topic.
Different Ways of Looking at Maximum Contributions to Rhode Island 529 Plans
Because the true power of the 529 plan comes from generating tax-free returns on investments to help finance a beneficiary’s education, it’s important to build up the balance of an account through contributions. For anyone with a 529 plan in Rhode Island, this means that making regular contributions is essential if an account owner wants to get the most out of their plan; however, these accounts have what’s called a maximum contribution, which can limit a person’s ability to keep adding to the balance of their account.
Limits on Contribution Amounts
Based on the term, you might understandably assume that a Rhode Island 529 plan’s “maximum contribution” refers to the largest amount that can be added to the plan at one time. Normally, this is not the case, but there is a version of this one-time contribution limit that’s worth mentioning, one imposed by the federal gift tax. In addition, ABLE accounts – a type of 529 plan that caters to Americans with disabilities – do set a limit on annual contributions.
Generally, a person can give up to $15,000 a year in gifts (which includes 529 plan contributions) before incurring the federal gift tax. As long as you haven’t surpassed your lifetime exemption – more than $11.5 million in total gifts – you won’t actually have to pay taxes when giving more than $15,000, but you will need to submit a tax return. ABLE accounts use this same number as a hard limit on contributions each year, though account owners who work can often contribute some of their wages in addition to this amount.
Limits on 529 Plan Balances
When a plan administrator or website talks about the program’s “maximum contribution,” it’s referencing a limit on the account’s balance. Once the total value of a 529 plan has exceeded that limit, no further contributions can be made, though the balance can continue to grow through investments.
Typically, states like Rhode Island set their maximum contributions based on an estimation of the maximum amount a college education could cost, with values ranging from $235,000 in some states to more than $500,000 in others. These limits are generally imposed on all accounts from a particular state that have the same beneficiary, so multiple 529 plans could be affected by the program’s maximum contribution limit.
Workarounds for Maximum Contributions in Rhode Island
While the maximum contribution for a given 529 plan serves as a hard limit, there are a few ways to get around this ceiling and continue saving money for your loved one’s education. The simplest way to do so is to open a 529 plan in another state, as maximum contributions end at the state border.
Another option is to change the beneficiary of your Rhode Island 529 plan – an easy process that won’t trigger any penalties as long as the new beneficiary is a family member of the previous one (as recognized by the IRS). If you have multiple plans that are capped because of the program’s maximum contribution limit, this solution could allow you to continue making deposits to one or both accounts.
Maximum Contributions to a Rhode Island 529 Plan
The State of Rhode Island offers three different 529 plans: two education savings plans, which are open to everyone, and an ABLE account, for which only some Americans can qualify. Each type of plan has its own maximum contribution, which we’ll cover below:
Rhode Island Education Savings Plans
Most people with a Rhode Island 529 plan will be enrolled in either the CollegeBound 529 program, which offers advisor-sold plans, or the CollegeBound Saver program, which offers direct-sold options. Both types of plans carry the same maximum contribution limit: a total of $500,000 per beneficiary among all Rhode Island accounts.
Rhode Island ABLE Accounts
Americans living with a disability that was diagnosed before the age of 26 may be able to enroll in the RI’s ABLE program. As with other types of ABLE accounts, only $15,000 per year can be contributed to one of these plans, with the potential to contribute up to the single-person poverty line ($12,880 in 2021) in earned wages. The balance of an RI’s ABLE plan can grow to a maximum of $395,000 before contributions have to cease, but any balance above $100,000 will likely disqualify the account owner from receiving further Social Security payments.
Open a Rhode Island 529 Plan Quickly and Easily with Help from Sootchy
At Sootchy, we know just how important it is to start saving early and earnestly for a child’s education, especially given how quickly tuition costs are continuing to rise. Opening a 529 plan in Rhode Island or another state with the free Sootchy app can allow you to start investing in your loved one’s future while making it easy for friends and family to contribute to the plan. Learn more by downloading our mobile app today or visiting Sootchy online.
