The details and benefits of 529 plans vary by state. Learn the specific contribution limits for 529 plans in Utah and make an informed investment decision.
Opening a 529 plan for a family member can be hugely advantageous when they get ready to head off to college, but managing these accounts requires strict adherence to certain standards and limitations, such as those governing how the funds are spent. Some of the details concerning 529 plans can vary from one plan to another, depending on the state; features like mandatory contributions, minimum deposits, and state tax benefits may exist with one 529 plan but be absent from another, so it’s important to be aware of what your plan requires when signing up. One of these details you should be aware of is the limit on maximum total contributions, which can vary from plan to plan. Since Utah’s my529 plan is among the most popular in the nation, many people want to know: What is the max contribution for a 529 plan in Utah? To find out, keep reading as the experts at Sootchy explain.
With its array of useful features, it’s easy to see why people from every state turn to Utah’s 529 college savings plan when saving for their loved one’s college costs. Utah’s plan is of the direct-sold variety, so it comes with low fees (especially compared to advisor-sold plans), and like many states, Utah offers a state income tax incentive for residents who own and contribute to a 529 plan. Given the astronomical (and growing) price of a college education, however, a major detail in many minds in how much someone can keep in their account.
Those with a Utah plan will be happy to know that the state offers one of the highest maximum total contributions of any plan: $500,000. In practice, this limit applies to all accounts within Utah’s my529 program that have the same beneficiary; in other words, having two accounts with $250,000 for the same person will put you at the limit. Should your account(s) get to that point, don’t worry, because there’s no penalty for going over that limit via returns on investments, but it means that you won’t be able to contribute any more money for that beneficiary unless the balance drops.
Aside from the maximum total amount you can put into a 529 plan, there are also yearly limits that account owners should be aware of, though these are typically soft limits imposed by the IRS, not hard limits inherent to a particular plan. (The lone exception to this rule would be ABLE accounts, a type of 529 plan offered to Americans with disabilities.)
Because any contribution to a 529 plan is considered a gift for tax purposes, the federal gift tax functions as a sort of yearly limit on the amount a person can contribute without having to worry about filing a return or paying a tax. For all filers, this annual ceiling on tax-free contributions is $15,000, though there’s an important caveat to consider.
Although the IRS enforces the gift tax for 529 plan contributions, each taxpayer is entitled to what’s called the lifetime gift tax exemption, which is the total amount – beyond that $15,000 yearly limit – that they can contribute without being taxed. In 2020, that limit is $11.58 million, so if you contribute more than $15,000 in a year but haven’t reached your lifetime limit, you won’t have to pay any taxes (though you will have to file a return via IRS Form 709).
In some states, opening a 529 plan requires meeting observing not only the maximum total contribution limit but also a minimum that must be contributed when opening an account and in each month that follows. South Dakota, for instance, requires account owners to deposit $1,000 as an initial contribution and mandates an additional $50 per month be added; Nevada has a 529 plan that carries a minimum initial contribution of $3,000, plus the same $50-per-month mandate as South Dakota. Utah, however, does not have any of these requirements.
When opening a my529 plan in Utah, you can make your initial deposit whatever amount might suit you, from as little as $1 to thousands of dollars – whatever you can comfortably afford at the time. Similarly, the state allows you to contribute what you want, when you want throughout the life of the plan.
It should be noted, however, that larger upfront contributions can go a long way toward ensuring you get the maximum benefit from your contributions. The greatest advantage of a 529 plan is that it allows for the buildup of investment returns over a number of years without taxing those gains in any way, providing a source of untouched income for families and making higher education (as well as private elementary and secondary education) more affordable. If you don’t put much in the account, though, your gains will be limited, and you may not get much out of your 529 plan.
Just because the details of the various 529 plans can be complicated doesn’t mean that opening or managing one has to be. To help families choose and start their own 529 plan, the team at Sootchy has created an intuitive app that makes it easier than ever to start saving for your loved one’s college expenses. Learn more about these plans and the benefits they offer by visiting Sootchy online or downloading our app today.