Kathryn Pomroy
A 529 plan can be a valuable tool to invest in a child or grandchild’s education. Not only that, it can also be a powerful tool in estate planning, offering tax advantages and flexibility that align with your wealth transfer and legacy goals.
Money in a 529 plan grows free from federal or state taxes, as long as withdrawals are for qualified educational expenses. Because of the favorable tax treatment, 529s are one of the best ways to save for education. Plus, unlike other gifting strategies, 529 plans allow you to maintain control over the funds and contributions to a 529 plan — $19,000 per beneficiary in 2025 or $38,000 for married couples — are considered gifts and can help reduce the size of your taxable estate.
Moreover, 529 plans now benefit from two recent developments — the ability to roll over unused funds into a Roth IRA and to use the grandparent loophole to fund a grandchild’s education without impacting their financial aid eligibility.
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But there’s another strategy — superfunding a 529 — also worth considering if you have a good sum of money you plan on investing in your loved one’s future education.
What is superfunding a 529?
529 plans allow a contributor to prepay a beneficiary's qualified higher education expenses at an eligible educational institution or to contribute to an account for paying those expenses. While 529 contributions have to be made with after-tax money, the contributions grow free from federal or state tax.
529 plans are subject to gift taxes when they exceed certain thresholds. For 2025, the annual gift tax limit is $19,000 or $38,000 for married couples. The limit applies to each person who is receiving a gift. This means that you can donate up to $19,000 or $38,000 per grandchild per year without owing a federal gift tax.
However, “superfunding” a 529 account allows families to avoid paying gift taxes on large, one-time contributions to a 529 plan through 5-year gift tax averaging. To superfund a 529, you’ll make five years of contributions all at once, instead of spreading these contributions out over several years. This means individuals can contribute up to $95,000 per beneficiary in 2025 ($19,000 × 5 years). If married and filing jointly, you and your spouse can contribute up to $190,000 per beneficiary in 2025 ($38,000 × 5 years).
“Technically, you could contribute more than $95,000, but then your lifetime federal estate and gift tax exemption amount would be reduced,” according to Elliott Appel at Kindness Financial Planning. “Currently, that is $13.99 million per individual, or $27.98 million for a married couple filing jointly."
Once your five years of contributions have been recognized, you can make another superfunding contribution and must be reported by taxpayers on IRS Form 709 for each of the 5 years.
Benefits of superfunding a 529
The main benefit of superfunding a 529 is compounding. Here’s an example from Synovus that illustrates just how much you can earn over time by superfunding a 529 plan:
A single lump-sum $80,000 contribution compounded at 8% over 18 years would grow to a value of $319,681. If you spread that same $80,000 investment out over 5 years, contributing $16,000 per year (and then contributed no more for the next 14 years), your investment will only reach $292,641 — a $27,040 difference.
Another benefit of superfunding a 529? Reducing your taxable estate. Superfunding a 529 can be used to lower future estate tax liabilities, “fast-tracking the transfer of wealth out of the estate while leveraging the account’s tax-free growth potential,” according to Oppenheimer & Co. Inc.
For example, let's say that you and your spouse superfund a 529 plan for your grandchild with a $190,000 contribution. You file Form 709 to spread the gift over five years ($38,000 per year). As long as you make no further gifts to this grandchild through 2029, this contribution is gift-tax-free and reduces your taxable estate immediately. If you have three grandchildren, you could contribute $190,000 to each, totaling $570,000, all within the gift tax exclusion.
Bottom line
Superfunding a 529 plan can be a great way to save for your child's or grandchild's education expenses while also boosting your overall estate plan goals. By front-loading a 529, you’ll be able to avoid paying gift taxes on contributions while maximizing the amount earned in interest over time.
However, according to a study from Edward Jones, 50% of Americans don’t know what a 529 plan is. If you’ve thought about contributing to a child or grandchild’s future education, a 529 plan could be one of the best ways to do so, while also securing your financial future.
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