Who Can Contribute to a 529 Plan?

A 529 plan is one of the smartest education investments that can be made for a child’s future. Even so, there may be some questions if you’re unfamiliar with how 529 plans work.

If you’re an aunt, grandparent, or family friend, you may wonder who can contribute to a child’s 529 account. Is it only open to parents, or can anyone make a contribution? How exactly does the contribution process work? Are there limits? What about tax advantages? No worries. We’re here to set the record straight.

Who Can Contribute to a 529 Plan?

529 plans, like the NC 529 Plan, are educational savings accounts where the money saved can grow and be used tax-free for a host of educational costs.

Are you the grandparent, aunt, uncle, or family friend of a child who has a 529 plan? Then you can contribute!

One of the best attributes of an NC 529 Plan is that there is no real limit as to who can contribute to an account. Immediate family, extended family, or even people to whom you aren’t related can all contribute to a plan to help prepare for many of the expenses associated with K–12 and college.

This means education savings may grow faster than if there were just one person contributing and saving alone. In fact, an NC 529 contribution makes a great gift for any occasion! People can gift to 529 plans for birthdays, baby showers, holidays, graduations, and more. With our new gifting link, contributing is easier than ever.

How Do You Gift to a 529 Plan?

The NC 529 gifting link is the easiest way to contribute and gift to an account. You can make both one-time gifts and recurring gifts. There are several ways to contribute to an NC 529 Account, including recurring bank drafts, checks, funds transfers, and even payroll deductions. You can also “roll over” another 529 account into an NC 529 Account. When you contribute to an NC 529 Account, you give the gift of education. It’s an investment for the future.

One-time contributions are also an option if an individual cannot contribute regularly. It’s worth noting that while there is no annual fee for an NC 529 Account, it is important to keep a balance above the minimum of $25 in the account and to keep adding to it.

Are There Any Limits to NC 529 Plan Contributions?

While there are no limits on who can contribute to a 529 plan, there are limits on how much you can contribute. These limits are established by the Internal Revenue Service Code. Currently, a beneficiary cannot have more than $550,000 together in any and all 529 accounts. So, depending on how much the beneficiary currently has in a 529 account may determine how much you can contribute.

This number is based on seven total years of postsecondary education (four years of undergraduate studies and three years in a master’s or professional program) at the most expensive schools in North Carolina. It’s also important to point out that the NC 529 Plan can also be used at out-of-state schools. For a contributor, there are limits related to the federal gift tax. Individuals may contribute up to $18,000 annually in tax year 2024 to avoid the federal gift tax.

Is a 529 Plan Gift Taxable?

If the NC 529 Account is utilized by a beneficiary for its intended purpose of education-related expenses (known as Qualified Education Expenses), including, but not limited to, tuition, room, board, and books, earnings on an NC 529 Account are free from federal and, for North Carolina residents, N.C. income taxes.

If the funds in an NC 529 Account are withdrawn for purposes that do not relate to education, they are subject to a 10% penalty, as well as state and federal income taxes. This is called non-qualified withdrawal.

As of 2014, contributions to an NC 529 Account are no longer tax-deductible, as a result of legislation passed by the North Carolina General Assembly.

What Happens if You Don’t Use All of Your NC 529 Plan Funds?

For one reason or another, a beneficiary might not use all of the funds in their NC 529 Account. In the event of this happening, there are several options. 

• The participant, or person who established the NC 529 Account, can “roll over” the funds to a new beneficiary. The new beneficiary must be a member of the original beneficiary’s family, perhaps a sibling or parent who wishes to return to school.
• Funds do not expire, so the money can also remain in the original beneficiary’s account to be used later for a graduate or professional program.
• Excess funds, with limitations, also can be put into a Roth IRA in the beneficiary’s name. The same tax benefits will apply. This can help the beneficiary plan for retirement and create more wealth. 
• Lastly, the funds can be withdrawn for non-education-related reasons as a non-qualified withdrawal. Remember that you will be taxed on the earnings if you take this option.

If the beneficiary receives a scholarship paying for a portion of the expenses that would normally be covered under a 529 plan, the participant and beneficiary will not lose access to their NC 529 Plan money. The amount of the scholarship can be withdrawn but will be subject to state and federal income taxes.

Now that you’re aware of all the benefits of an NC 529 Plan, contribute to a 529 Plan and help a beneficiary save for education and beyond! You can contribute as little as $25.