There are no annual contribution limits for Texas 529 plans, other than the annual gift tax exclusion and 5-year gift-tax averaging. Texas 529 plans have a cumulative contribution limit of $370,000 per beneficiary.
Annual Contribution Limits
There is no annual limit on contributions to Texas 529 plans, but contributions in excess of the annual gift tax exclusion of $15,000 per beneficiary ($30,000 for a couple giving jointly) may be subject to gift taxes or use up part of the lifetime gift tax exclusion if the contributor does not elect to use 5-year gift-tax averaging. If the contributor elects to use 5-year gift-tax averaging, the limits are $75,000 per beneficiary for a single contributor and $150,000 per beneficiary for a couple giving together.
Gift taxes, if any, are paid by the contributor, not the account owner or beneficiary.
Aggregate Contribution Limits
Each state sets its own aggregate contribution limit, based on the cost of a college education in the state. Generally, most states base their aggregate contribution limits on the cost of 7 years of postsecondary education.
In Texas, the aggregate contribution limit is below-average at $370,000. (The average aggregate contribution limit is $402,376.)
Once the 529 plan account balance reaches the aggregate contribution limit, no further contributions may be made. However, the Texas 529 plan will continue to accumulate earnings.
Impact of Excess Contributions to Texas 529 Plans
Unlike Coverdell education savings accounts and ABLE accounts, which have a 6% excise tax on excess contributions, 529 plans do not have a tax or penalty on excess contributions. Instead, the 529 plan manager will reject excess contributions and return them to the contributor.
Minimum Contribution to Texas 529 Plans
The minimum contribution amount for Texas 529 plans is $25 ($15 for payroll deduction).
Tax Deductions for Texas 529 Plan Contributions
Contributions to Texas 529 plans are made with after-tax dollars, similar to a Roth IRA.
Contributions to Texas 529 plans are not deductible on federal or Texas state income tax returns. Texas is one of nine states that do not have a state income tax and therefore do not offer a tax deduction or tax credit based on contributions to the state’s 529 plan.