Your 529 on Steroids: A Hitchhiker’s Guide to Superfunding

When Progeny BITA was a mewling babe, bawling and puking, peeing, cooing and spitting, we took one look at her and just knew she was college material. We did a bit of research, asked our friends for advice and eventually toodled off to good ‘ol Vanguard and opened a 529 college savings account for her. A quick recap of the benefits of a 529 are in order:

  • It is a savings plan for college. No, it cannot be used to fund expensive fancy-pants private kindergartens.
  • Savings are not deductible for federal purposes, but there may be state tax benefits to be had. My state of CA has none. If your state does offer some tax benefit it probably makes sense to stick with a plan offered by your state. If not, you can pretty much pick any plan from any state, based on a plethora of reviews available online.
  • Capital gains and dividends reinvested compound tax free.
  • On withdrawal, no federal taxes are owed as long as the money is used for a qualified higher education expense (e.g. college tuition, room and board).

You can read more about opening a 529 with Vanguard here.

Since our crystal ball broke when our boisterous Husky knocked it over, we have no way of knowing what college education is going to look like when Progeny BITA turns 18. Also, for the purposes of the Free Application for Federal Student Aid (FAFSA) the 529 is considered a parental asset, so 5.64% of it would count towards Progeny BITA’s expected family contribution (EFC) if and when she applies for financial aid. So, we decided to hedge our bets by saving some money for Progeny BITA in a 529, and for the rest (hopefully there will be no rest) we could dip into our Roth/taxable accounts should the need arise. The magic number we chose as our target investment for her 529 was $56,000. Why $56,000? Because after compounding for 16 years at a decent rate of return that should cover 4 years of tuition at a public in-state school (assuming tuition prices continue to increase at their current rates). And because we are fundamentally lazy and $56,000 is nicely divisible by $14,000.

$14,000? What does that have to do with anything? I’m glad you asked. $14,000 is your annual gift-tax exclusion amount (per recipient) and gifting this amount incurs no tax. There are no IRS filing requirements and these gifts do not eat into your lifetime estate basic exclusion amount. So, we planned to get to $56,000 by contributing the allowed maximum of $14,000 per parent (so $28,000 total) per year to her 529. And then we discovered Superfunding.

What is Superfunding?

(As an aside, don’t you love all these cool financial names? superfunding, mega backdoor Roth. Who comes up with this stuff? They all sound like superheroes. Well, except the Roth. He sounds like a villain.)

Let’s do the numbers. Instead of being limited to $28,000 per year, a two parent family can go up to a whopping $140,000 ($14000 * 5 * 2) to fund a 529 in a single year. Basically you are being allowed to give a single recipient five years worth of tax-free gifts in a single year. If you have wealthy grandparents who want a tax-friendly way to divest portions of their estate, you can pile on even more.

We don’t have access to $140,000 to save for a 529 in a single year (we are selfishly funding our own early retirements as well), neither do we have access to wealthy grandparents. We did superfund a little though. We started her off with $48,000 in her 529.

Why Superfund?

Because compounding.

Let us assume that Couple A invest a total of $70,000 in their daughter’s 529, but they do it at the rate of $14,000 a year for the first five years of her life. Couple B decides to superfund and puts in the whole $70,000 in the beginning. If we assume an annual rate of return of 5%, this is the result by the time the child is ready to go to college.

Superfunding yielded $15,298.14 more. The superfunded 529 in this example ended up nearly 10% larger than its less-than-super cousin.

How to Superfund

Fund your 529 and then file form 709 at tax time.

That really is all there is to it. A couple of things worth noting:

  1. If you contribute in excess of $14,000 per person (and up to $70,000) the entire amount will be considered to be ‘spread’ over the five year period. e.g. if you contribute $42,000, the amount of your gift over the next 5 years will be $8400. You don’t get to say that you want your extra gift to count as $14,000 per year for three years and zero for the two years after.
  2. You can contribute an ‘excess’ amount more than once in a five year period. If, like us, you can superfund a little, but not the max, this is useful. e.g. let’s say you contribute $24,000, that will count as ($24,000/5) a gift of $4800 for five years. The next year you can choose to contribute another $24,000, and you will now be using $9600 of your ‘gift exclusion) in years two-five (and back down to $4800 for year 6).


How exactly does one file a form 709?

You must submit a 709 (or maybe two, see below) when you file your taxes for the year.

Step 1: If you elect to split your contribution between yourself and your spouse then you say yes to question 12 of Part 1, and then answer the rather obvious questions 13-18.

The IRS instructions for form 709 say “A married couple may not file a joint gift tax return. However, if after reading the instructions below, you and your spouse agree to split your gifts, you should file both of your individual gift tax returns together (that is, in the same envelope) to help the IRS process the returns and to avoid correspondence from the IRS.”

So, if you split (or if you contribute > $70,000) , you will both fill one 709 each, and submit them together.

Step 2: Fill in Schedule A

You must choose option B to indicate that you want to split your gift over a period of 5 years. Remember the X we computed in the flowchart earlier? Use that to fill Part 1 (I’ve assumed here that a couple is filing and splitting the contribution).

Again, quoting the IRS For each of the 5 years, you report in Part 1 of Schedule A one-fifth (20%) of the amount for which you made the election. In column E of Part 1 (Schedule A) list the date of the gift as the calendar year for which you are deemed to have made the gift (that is, the year of the current Form 709 you are filing). Do not list the actual year of contribution for subsequent years.

The IRS also says “if in any of the last 4 years of the election, you did not make any other gifts that would require you to file a Form 709, you do not need to file Form 709 to report that year’s portion of the election amount.

So, the year that you superfund you enter 1/5th the amount into Part 1, as shown above, and use the date of the year that you did the superfunding. In subsequent years, if you don’t make any more contributions you don’t have to file a 709. If you do make more contributions, or even other gifts to someone else, you will have to make an entry again for X/5, and this time you use a date in the current year, not the year in which you actually funded the 529.

Step 3: Attach an explanation

When you tick option ‘B’ above the IRS expects an attached explanation. Back to the source again, “Also attach an explanation that includes the following. The total amount contributed per individual beneficiary. The amount for which the election is being made. The name of the individual for whom the contribution was made.”

Here is some sample text that you could use:

  • The donor made a contribution to a QTP (a 529 plan) in the amount of $X in the year YYYY.
  • The contribution was made for ABC (Relationship to donor, address).
  • Under section 529(c)(2)(B) the donor elects to treat the gift as having been made ratably over a 5-year period.
  • [Optional] The gift was made jointly by the donor and the donor’s spouse and will be split equally in half.
  • The election is made for $X over 5 years equals $X/5 per year, or $X/10 per person per year.


That is all there is to it. Your superfunded 529 is on its steroid filled way to fund a college education. You can sit back, relax and enjoy watching your progeny progress from drooling and spitting to talking and tantrums. Before you know it, they’ll be ready to walk out that door for good.

Do you use 529s? Have you superfunded? Maybe you don’t believe in college? Or maybe you want your kid to learn some solid life lessons by fending for themselves in college?

Disclaimer: Ugh. Do I have to really say this? I am a random person on the internet with no special expertise in 529s, IRS rules, taxation, or anything else I may have mentioned in this post. Don’t be lazy. Do your own research. And no, you don’t get to blame me for doing your taxes wrong.


50 thoughts on “Your 529 on Steroids: A Hitchhiker’s Guide to Superfunding”

  1. When I first got to your block quote about gifting for 529’s I literally said, “Motherf***er!” and then looked around to see if anyone had heard… 🙂

    We’re not done funding our kids 529’s yet, so from now on, superfunding all the way! We did miss out majorly on that though because initially we front loaded them pretty heavily. When #2 came along, we caught hers up to our oldest’s in a lump sum. Gah!! Loopholes missed out on. Oh well. Where was this article 5 years ago?! hahahaha

    We are looking at similar amounts for our kids, enough for an in state public school and an undergrad degree, if they don’t squander it. We feel they should be vested in their degree so we didn’t want to just give them free reign to take 7 years to get thru school like I did. Although, I was paying for it myself and working full-time so a bit different.

    Thanks for laying it out so well though! Excellent article bookmarked for next years tax season. 🙂

    1. That made me so happy! Eliciting a good heartfelt curse from a reader is pretty much the standard to which I hold myself when I write.

      Your strategy is about the same as ours – enough so they don’t struggle and are not inundated with debt, but not so much that they are spoilt and unappreciative.

  2. Holy moly. Why the heck did we not know this stuff. Grr…!! Sorry, fabulous information and thanks for sharing. I need to consult with Mrs. PIE on this one and see what we can do next couple of years before we hit FIRE. It’s funny that the plans of yourself, the SSC’s are all the same with respect to amounts we are aiming to fund. I do hope costs don’t run away from us and we can hit our goals without eating into the parental funds..!!

    1. At least this way, if all of us are wrong, we can cry about it on each other’s shoulders. Misery loves company.

  3. This was really interesting! I’m actually working on a post about how we just funded 529 plans for my husband and myself, that we’ll gift to our future kids when they decide to start existing. We’re definitely going to use the “superfund” rule to gift them multiple years’ worth of contributions (and may I say it is really “super fun” to say the crazy sounding personal finance jargon like that!)

    1. Thanks for stopping by and commenting. I wish we had started before Toddler BITA was in existence. It certainly would have been easier to put more aside then than it is now, so good for you for getting an early start.

  4. Brilliant!!! I love your caveat at the bottom ” I am a random person on the internet with no special expertise in 529s, IRS rules, taxation, or anything else I may have mentioned in this post.”

    It’s always amazes me when non-tax accountants stumble upon something like this in the tax code with a little bit of research. Thanks for sharing these awesome nuggets of wisdom!!!

    1. It really annoys me though, that a caveat is required. I mean, isn’t all of that obvious? I’m glad you enjoyed the article though, I had a lot of fun writing it.

  5. Very detailed post and interesting strategy if you can swing it. I had read about it in the comments @ The White Coat Investor – one doctor had done this for (I think) each of three kids when they were babies. They should be in excellent shape for college!


    1. A full superfund for 3 kids? Wow, that is nearly half a million dollars of investment. Thanks for stopping by PoF.

  6. I wish we had the funds to do this when my oldest (now 13) was a baby! We had to work for about a year just to save up enough to open a Vanguard 529 with the $3000 minimum. Since then, we’ve contributed faithfully every single month for 13 years, and asked relatives to consider a contribution for birthdays/Christmas instead of just toys. It’s amazing how much the account can grow over time-it’s compound interest at work!

    We have three kids and my goal is to save enough to fully fund a four year degree at our in-state flagship university, including tuition, room/board, and supplies. Now that’s a lot – about $100k per kid today (and for the toddler I’m sure it will be more). I actually keep a chart in one of our kitchen cabinets with the goal and a bar I color in every quarter as we get closer.

    1. Superfunding is definitely a privilege, especially the ability to go whole hog with the $140,000. I love your slow, steady, determined approach though. Compounding is on your side, and it is one of the most powerful forces known to us! It must be so satisfying to watch that chart get more colour as time goes by.

  7. Great information–and I think “compounding” is my superhero. I will send this out to our audience. Thank you.

    We aren’t as fortunate in our tribe to be able to superfund we are slow and steady. And I encourage my friends and family to contribute using Gift of College (529 and student loan) gift registry. No more “stuff” — just stuff the stockings with the GOC gift cards.

    Well however you get there, let’s just let our kids have a debt free college experience in the future.

    1. Ha, yes. Compounding should be recognized with a Nobel prize, or at least an MTV award. It has done so much to completely change people’s lives and empower them. Thanks for stopping by and for sharing this post.

  8. We are contributing $0 to Jr’s 529. Maybe that is super-underfunding? 😛

    With no federal tax savings and (for us) no state tax savings, I didn’t really see the point. Not when there are restrictions on how the funds can be used. So we are saving in a combination of taxable accounts (we pay zero tax anyway) and in Jr’s Roth IRA.

    1. Bah. I wish I paid zero tax. Or even anything remotely approaching zero tax. Or something that looked a little bit like zero tax if you squinted just right.

      P.S. At the risk of embarrassing myself and coming across as a total fanboy, I am thrilled that you stopped by. Your blog is one of my favourites. Ok. Now let us pretend I said nothing and never mention that ever again.

  9. Ok – this is a terribly impressive and well-thought through tutorial to help us out. First and foremost, thank you. I stumbled over here on a whim and I’m excited to start reading through other posts. However; I think i missed something. I read that you are a fellow Californian and I cannot understand the logic of using the 529 vehicle for saving for our child’s education in California. Why did you do this? I used to think of the 529 as simply a Roth IRA (to grow savings without taxing the interest) but makes the money accessible at age 18 for school rather than at retirement but I can invest in individual stocks in my Roth and my options in the 529 are incredibly limited.

    Sincerely appreciate your perspective.

    1. Thank you for your appreciation AJM, and for taking the time to leave a comment.

      To answer your question: if one is above the income limits to contribute to a Roth IRA, then using that as a substitute for a 529 doesn’t quite work. Also a Roth IRA allows a max contribution of $5500 a year, which is significantly less than what you can put in a 529, even without superfunding. The other problem is that you can’t easily withdraw the earnings from a Roth IRA before age 59.5 without penalties. I hope this helps clarify things for you.

  10. You never mentioned any fees to do this. No such thing as a free lunch. What are the fees on front and back end of a superfund 529. Thanks in advance.

    1. There are no extra fees associated with superfunding a 529. There is extra work involved (an extra form to file with the IRS), but the fees involved for superfunding are the same as with regular funding – you will be subject to the terms, fees and expense ratios of the investment firm you use for your 529. I use Vanguard and their expense ratios are happily nice and low.

  11. This is a really great tutorial you put together – that k you very much. I especially appreciate looking at the Form 709 in detail. One question for you: I won’t have enough cash to do a joint maximum contribution of $140,000 this year for our newborn son, so what I was considering is contributing $70k from myself (answering No to the line 12 gift-splitting question), and contributing $14k from my wife, and then for the next four years I can also put in $14k/year as contributions from my wife. Do you think this violates any rules as far as you know?

  12. I’ve come back to this article 3 times and will probably read it 2-3 times more come tax time next year. Thank you for laying out such a great strategy for high tax bracket earners! If you have any other tax saving ideas I’d love to read them!!! It’s rare to find tax optimization advice for families in the top 2 tax brackets. I feel like I never read anything that applies to anyone that earns more than 150k.

    1. You are most welcome, and thank you for taking the time to leave a comment.

      Have you read my megabackdoor Roth post? If your 401k plan allows it, that is a great way for high income earners to get some of those lovely Roth dollars. I’m also currently working on a backdoor Roth how-to post, so if you subscribe that should show up in your mailbox in a week or two.

      1. I’m planning on changing jobs this year so that is an option I’m looking into. But taking all things into consideration (like the monthly house cleaner my husband promised me this year), I don’t think we’ll be able to do both super funding and 401k. So I’m leaning towards the 529s because they have a shorter window to grow. Love the back door Roth IRA, we’ve both contributed the last 5 years and have a tidy sum in there. We do an HSA as well. I felt like besides having more babies, I was sheltering as much as possible and then your post blew me away!

        1. If your 401k has an employer match do at least that much. Don’t leave that free money on the table!

          And a house cleaning service is the best, so yay for that : )

  13. I can only superfund one of three kids. I have 56k available. Would you recommend funding the second grader, kindergartener, or the preschooler? If/when the 529 falls short on any of the kids, we can cashflow the remainder. I am leaning toward the younger of the three because we will presumably be retired and it would be nice to have the money just sitting there without dipping into other savings. Alternatively in two years or so we may have enough to superfund the middle and the smallest so perhaps we should gift the 56k to the oldest. Curious to see what you or others would do.

    1. I would superfund the preschooler to get the maximum bang for my compounding buck.

  14. This has been very useful information. One question though. If I contributed more than $14K last year to a 529 but less than $70K, do I need to file Form 709? The instructions are vague, but it sounds like I only need to file the form if I exceed $70K. What’s your take on that?

    “You must report all of your 2016 QTP contributions for any single person that exceed $70,000 (in addition to any other gifts you made to that person).”

    1. Yes, I believe you do. When we superfunded Toddler BITA’s 529, we only put $48k in it, and we needed to file two 709s (one each, for Mr. BITA and for me) because we were sharing the ‘gift’.

  15. Stumbled upon your post while researching how to superfund our toddler’s 529. Thanks for the detailed info.

    However , I’m not clear about some of the details. If we (wife and I ) max out our superfund contribution this year (140K), we can’t contribute any more for 5 years, right? But can we resume contributions of 28K from year 6 onwards?

    And thanks again for the tips.

  16. Wonderful article and well done! What did you decide to do?

    With the stock market at a record high, I’m worried about funding the $70,000 right away. I’ve elected to fund $20,000, and then see if there are any other opportunities to buy in for the remainder of the year with the remaining $50,000. I figure, I’ve got 18 years to get to the $375,000 maximum limit, so what’s the rush? Thoughts against this strategy?

    It is theoretically possible to contribute $140K this year + another $140K from 10 friends and relatives who each contribute $14K this year, for a total of $280K correct? And these friends and relatives can contribute another $140K next year until the $375K max for my plan?


    1. Thanks Sam, much appreciated coming from the likes of you who has been a veritable font of wonderful articles over the years.

      We put in $48k at one shot and we’re done. If she ends up needing more than what that grows to for college, we’ll fund her from our taxable accounts, or from our Roths. Her grandparents might add more in there, but we are done. We aren’t sure what college tuition is going to look like in 16 years. We aren’t even sure that she is going to grow up in the U.S., or attend college here – so we are wary of putting more in there.

      One argument against your strategy is that the earlier you put it in, the more time it has to grow. Also, if you are slowly contributing, and it grows to $375k, you won’t be able to contribute any more. If you do intend to put in all $375k, you should do that before the growth gets you to the limit and you get locked out. My understanding is that growth is allowed to take the account beyond $375k, but your contributions are not.

      As to your second question, yes, what you suggest is indeed possible. I wish we had 10 such generous friends and relatives!

  17. Two questions:

    1. What’s the maximum number of 529 accounts one can open? We are married with one kid and hope to have 2 more. No grandkids. Could we open 3 today (one for me, one for my spouse, one for our child), or some other figure?

    2. How big can these accounts get? With $140k superfund in year 1 and $14k a year from year 6 on and an 18 year runway for tax free compounding, an account can grow to millions. Paying a 10% penalty on any gain not used for qualified expenses still seems like coming out way ahead than constantly paying tax in a regular taxable account. Couldn’t very rich people open many of these accounts and superfund them to save meaningfully in taxes they’d otherwise have to pay? If that logic holds, shouldn’t everyone open an account for themselves for any future potential education and let the investments grow tax free regardless of whether they ever go back to study? Am I missing anything?

    1. 1. I am not aware of any particular maximum. You can certainly have one for each child. You are even allowed to have multiple for a single child. Here are some articles on this subject:
      1.1 An example of someone with 32 529 plans

      2. Most (all?) 529 plans have a maximum contribution limit. If I remember right the Vanguard 529 we use has a maximum contribution limit of $370,000. The account can theoretically grow bigger than $370,000 – but we can’t contribute any more once it hits that magic number. This is another argument in favour of front-loading – you get your contributions in and then let compounding take care of the rest.

  18. Is anyone allowed to post a question about using the 709 when parents buy a Condo for an adult child and just puts one parent’s name on the title with the daughter’s name as ex: “Edna Jones or Carol Jones Joint Tenancy with Rights of Survivorship”? Since the Condo is paid for by “both” parent’s money, do they have to file two Form 709s or just one for the parent whose name is on title? Thanks so much!

  19. Hi,
    Thank you for the clear explanation!

    Question: “You can contribute an ‘excess’ amount more than once in a five year period. If, like us, you can superfund a little, but not the max, this is useful.” I did this, In this case, do we have to fill in the ‘Schedule B Gifts from prior periods’ section of the form 709 (for the year 1, where we super funded, your example is clear. You have also explained what needs to be done for year 2 in Schedule A Part 1, except for the Schedule B section. Can you please help?)

    Thank you!

    1. My understanding is that Schedule A is enough. You should check with a CPA though, because that part of my article is theoretical – we never funded again after the first year, so I have no actual experience with year 2. Should you discover that I am wrong and Schedule B is involved, do come back and let me know so that I can fix the article.

  20. Thanks for this article Bayalis. Awesome breakdown. Any idea if it is possible to superfund in your own name up to the individual maximum of $70k and then do the same in your spouse’s name the following year? It seems like this would make sense if you could swing $70K in a single year but not the whole $140K.

  21. Thank you for your guide. However, as Grandparents funding the 529 for our grandsons, we need to fill out Part 2 of Schedule A. I assume your data/numbers from Part 1 also apply for Part 2. However, Part 2 has a Column C which is not addressed in Part 1. It requires an “election” [in or out] based on 2632(b). What election should we use [we do not have a large estate] ?

  22. excellent post, I am planning to superfund my 2 kids this year they are 2 and 1 so enough time to weather the market ups and down, my question is how much will be needed?, I was thinking in putting 70K each now to cover probably 50% of a private college tuition or close to 100 % for a state college and just FYI if your state allow tax deduction you can open an out of state 529 and roll it over every year to take advantage of the deduction

    1. Thank you. As to the question of how much: the only honest answer is that your guess is as good as mine. I find it hard to believe that the cost of college will keep increasing at the current rate until my toddler is ready to go to college. That seems unsustainable, but what do I know? Add to that the added uncertainty of where we will be at the time (Here in the US, the Netherlands, India or some other country) and what my now-toddler may end up wanting to study (or not study).

      So, given my lack of a crystal ball, we decided to put in $48,000 in the 529 and call it a day. If our daughter ends up needing more than what is in her 529 we will pay for it out of our taxable investment accounts.

      And no, sadly my state does not allow for a tax deduction.

  23. This info is very new and helpful, thanks for putting this page up! I still am not very clear whether the superfunding amount of $140k that can be added to a 529 can come from pre-tax dollars or whether it needs to be post tax dollars. Can you please clarify? Thanks again!

    1. Federally, the money is post tax dollars. From a state perspective, the answer varies. You will have to look up the specific rules for your state.


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