Supercharge your college savings with 529 plan superfunding

To get a jump start on college savings, you might want to consider superfunding a 529 plan. This strategy, also known as "front-loading," helps take full advantage of the power of compound interest, helping your savings grow as long as possible before your beneficiary needs the money for education. It's also a strategy your immediate and extended family can use for tax savings and wealth transfer.

Of course, before starting any investment, you should speak to your tax and investment advisors for guidance. To have a productive conversation, here's what you need to know about this often-overlooked college savings strategy.

What is superfunding?

Superfunding is a way to means for maximizing your college savings. Using this strategy, you would make a lump-sum contribution to a 529 plan up front, instead of making smaller contributions over a series of years.

For example, you would typically want to limit your annual contributions to someone's 529 plan to the annual gift tax exclusion set by the IRS each year.1 That's $18,000 per person for 2024 — and $19,000 per person for 2025. But with superfunding, you can make a single lump-sum contribution of up to five timesthe annual gift tax exclusion and treat it as if you spread those large contributions out over five years.2 That means you could fund someone's 529 plan with up to $90,000 in 2024 (or up to $180,000 per couple if married and filing jointly) in 2024 — or $95,000 in 2025 (up to $190,000 per couple) in 2025.

The benefits of superfunding

While you can only superfund a 529 plan every five years, the practice offers several benefits for the right investors:

Compounding

Assuming a modest 8% return on your investments, here are two scenarios that demonstrate the power of superfunding:

A single lump-sum: Let's say that on January 1, 2025, you put $95,000 ($19K x 5) into a 529 plan that grew at an 8% annual growth rate and was compounded annually. If you never put anything else into it again, 18 years later, on January 1, 2043, it would be worth $379,621.

Five annual inputs of $19K each: Let's say that instead, you put $19,000 per year into a 529 plan for five years in a row. Assuming you put the money in on January 1 of each year from 2025 through 2029, earned an 8% annual return, and annual compounding, 18 years later, on January 1, 2043, you would only have $327,393.

That's a difference of more than $52K.

The aggregation loophole

Sometimes superfunding isn't enough to help you reach your college savings goals, especially if you're saving for a child with eyes on a more expensive education like film or medical school. Since 529 plans are state-specific, the maximum contributions vary and your saving efforts stymied if your plan's limit is on the low end like Georgia ($235,000 as of 2024).3

If you're superfunding the plan every five years starting when a child is born, you'll easily max-out the plan's total contribution limits before the beneficiary turns 18 — especially if more than one person is contributing to the 529 plan. However, you can continue superfunding if you open an additional 529 plan in another state.

Why out-of-state? Because all contributions to 529 plans with the same beneficiary and account owner in a single state have to be aggregated for purposes of tax reporting and calculating contribution limits. This can be a problem if multiple people are contributing to someone's 529. But you can get around the aggregation rules by opening plans in different states. For example, you could superfund a plan in your home state and grandparents or other generous family members could superfund a plan in another state.