Kentucky 529 Plan Tax Benefits

What Is A 529 Plan

A 529 plan is a tax-advantaged investment account that can be used to pay for qualified education costs. You can open a 529 plan at any time and name nearly anyone as a beneficiaryâincluding yourself. The beneficiary can use the money to pay for school upon reaching adulthood. Anyone can contribute to a 529 plan, including extended family or friends.

Also known as qualified tuition plans, 529 plans are commonly sponsored by statesâWyoming is the only state without one. While a handful of states require you to be a resident to use their 529 plans, most do not. However, you may receive extra benefits in your home stateâs plan, so itâs wise to compare your options nationally before opening an account.

Find your stateâs 529 plan here.

Make Savingfor Their Future A Lotless Taxing

With a KY Saves 529 account, your after-tax savings can grow tax-deferred. That means none of what you earn is lost to state and federal taxes.

Other tax advantages include:

• Tax-free withdrawals. Withdrawals for qualified expenses are exempt from federal and state tax.1
• Gift-tax benefits. Contributions qualify for the current federal $16,000 annual gift exclusion.
• Estate planning benefits. Reduce your personal taxable estate by making five years’ worth of gifts in one lump sum.2

1Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.2In the event you do not survive the five-year period, a pro-rated amount will revert back to your taxable estate.

For more information about the Kentucky Educational Savings Plan Trust , call 877-598-7878 or visit www.kysaves.com to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other important information. Read and consider it carefully before investing.

Ugift is a registered service mark.

INVESTMENTS ARE NOT FDIC INSURED, MAY LOSE VALUE AND ARE NOT BANK GUARANTEED.

What Happens To A Kentucky 529 Plan If Not Used

There is no time in which the funds within a Kentucky 529 plan need to be withdrawn. Unused funds can remain in the account and continue to grow tax-deferred.The account owner may also choose to change the beneficiary, without penalty, to another individual with a social security number who is a member of the original beneficiarys family and a United States citizen. This is not limited to immediate family members funds can be transferred to cousins, nieces, nephews, and other close relatives. The account owner can close the account if not used, but funds in the account will be subject to federal and state income tax as well as a 10% penalty on the account earnings.

And as outlined earlier in this article, 529 plans allow the account owner to withdraw the amount a beneficiary receives in scholarships without incurring the 10% penalty.

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Looking For Something Specific

2 Account owners may deduct for Nebraska income tax purposes contributions they make to their own account up to an overall maximum of $10,000 . Contributions in excess of $10,000 cannot be carried over to a future year. For a minor-owned or UGMA/UTMA 529 account, the minor is considered the account owner for Nebraska state income tax deduction purposes. The minor must file a Nebraska tax return for the year their contributions are made to be eligible for a tax deduction for their own contributions. In the case of a UGMA/UTMA 529 account, contributions by the parent/ guardian listed as the Custodian on the UGMA/UTMA Plan account are also eligible for a Nebraska state tax deduction. back

3 A donor may elect to treat a contribution to a beneficiarys account as made ratably over a five-year period. As a result a donor may make a contribution to a beneficiarys account of up to $80,000 without any negative gift tax consequences, so long as the donor does not make any additional contributions to the account during that tax year or any of the succeeding four calendar years. A Federal Gift Tax Return is required to be filed. Please consult with your tax or legal professional. If the donor dies before the end of the five-year period, the portion of the contribution allocable to years after the donors death will be includible in the donors estate for federal estate tax purposes. back

NOT FDIC INSURED* NO BANK GUARANTEE MAY LOSE VALUE

How Does A 529 Plan Work

A 529 plan works similarly to a retirement plan. Youâll set aside money on a regular basis and invest it according to your risk tolerance, or your childâs age if you choose an age-based portfolio.

Money saved in a 529 plan grows tax-free and wonât be taxed upon withdrawal as long as you use it for qualified education expenses. Eligible expenses include college tuition, room and board, textbooks, computers and software for students attending half-time or more, and up to $10,000 in K-12 private school tuition. Individual states run their own 529 plans, but you can choose to participate in any stateâs plan. You may get a tax credit or deduction for using your home stateâs plan, so it makes sense to compare various accountsâ benefits.

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Save Automatically With Ky Saves 529

You can fund your savings account directly from your UK paycheck, so you can set it and forget it. Making regular contributions makes a big difference, which is why we offer this direct funding option.

First, create your account on the KY Saves 529 website

Then easily assign your contributions in myUK

In myUK, go to Personal Information:

Then Personal Profile:

In the Bank Information section, choose Other bank then KY Saves 529 Plan :

The Account Type, Routing Number for KY Saves 529 Plans, and the 566 prefix for your account number is filled automatically. You will need to enter your 9-digit KY Saves account number in the Account Number field, along with the amount you’d like to contribute in the Standard value field. Please watch for extra space that could cause processing errors.

Financial Well-Being

Tax Benefits For Each State

In some states, contributions to any states 529 plan are eligible for a state income tax advantage. Out-of-state investors are not required to choose their home state plan to get the benefit but can select any states 529 plan, including the low-cost NEST 529.

NEBRASKA with the NEST Direct College Savings Plan taxpayers can deduct up to $10,000 in contributions from their Nebraska taxable income each year .2

Before investing, investors should consider whether their or their beneficiarys home state offers any state tax or other state benefits such as scholarship funds, financial aid, and protection from creditors that are only available for investments in such states qualified tuition program. Investors should also consult their tax advisor, attorney, or other advisor regarding their specific legal, investment, or tax situation.

Tax-Parity States include: Arizona, Montana, Minnesota, Kansas City, Missouri, Pennsylvania, and Florida

States that offer tax benefits for contributions to any states 529 plan.

Tax-Neutral States include: Alaska, California, Nevada, Washington, Wyoming, South Dakota, Texas, Hawaii, Tennessee, Kentucky, North Carolina, Delaware, New Jersey, New Hampshire, Maine

States without state income taxes or other state benefits for investing in that states 529 plan.

States where income tax benefits are only available for those who pay income tax in that state and own, or contribute to, that states 529 plan.

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What Are The Tax Benefits Of 529 Plans

When used for qualified expensesa category that includes tuition, certain room-and-board fees, required textbooks, and computersstudents can withdraw money from a 529 plan tax free.

In addition, some states offer income tax deductions for residents who contribute to their plan. A few parity states extend those tax benefits even if you pick a 529 plan from another state.

Limits On Annual 529 State Income Tax Benefits

Most states limit the amount of annual 529 plan contributions eligible for a state income tax benefit, but annual 529 plan contributions are fully deductible in:

In some states, the amount of 529 plan contributions eligible for an income tax benefit is per beneficiary, but in other states the amount is per taxpayer. If the state income tax benefit is offered per beneficiary, parents with multiple children should consider opening a 529 plan for each child to maximize the potential state tax savings.

For example:

• Nebraska offers married taxpayers a state tax deduction for 529 plan contributions to a 529 plan of up to $10,000 per year
• Ohio offers married taxpayers a state tax deduction for 529 plan contributions of up to $4,000 per year for each beneficiary

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Carryforward Of Excess 529 Plan Contributions

Ohio is also one of 12 states that allow taxpayers to carryforward excess 529 plan contributions to deduct in future tax years. That means if the grandparents want to contribute more than Ohios annual limit of $4,000 per beneficiary, they may deduct the excess in future years in increments of $4,000 per year, until the entire contribution amount is deducted.

Kentucky College Costs & Trends

Colleges and universities across the United States experienced increased operating costs of 2.5% in 2019. This most recent inflation figure was down slightly from the 2.9 percent increase in 2018 and 3.4 percent increase in 2017. These costs are forwarded directly to students in the form of higher tuition and living expenses. As these costs steadily rise every year, parents are looking for ways to help offset these future higher education costs.

These rising costs are hitting closer to home in Kentucky as well. Kentucky’s higher education costs rose by 39.9% in just the last 10 years, ranking as the 22th highest state.

The table below shows the average one-year costs last year for different types of Kentucky colleges and universities.

These costs rise every year. Rising tuition is a major driver in these increased higher education costs. Tuition at a 4-year university in KY rose 14% , while a 2-year or trade school increased their tuition by 20 percent.

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Kentucky Education Savings Plan Trust

KESPT is a traditional 529 plan that allows you to invest money today and reap tax benefits when you withdraw it to pay for qualified education expenses.

Type: Direct this Kentucky 529 plan can be purchased directly.

Fund Family:TIAA-Cref

Minimums: To get started you can deposit $25. If you should choose to deduct automatically from your paycheck, you can open an account with a $15 deposit. Minimum subsequent contributions follow as above $25 and $15 with payroll deduction.

Maximum Contributions: Currently, you can contribute to your Kentucky 529 plan until the aggregate balance per beneficiary reaches $235,000. Of course, your total amount in the plan can be higher as your investments group. 529 plans typically increase the contribution limit over time, so you may be able to contribute more

Tax Benefits: You get federal and state income tax benefits as you do not pay income tax on your earnings.

Residency:KESPT is open to all United States residents, not just those in Kentucky.

You can learn more about the this 529 plan at the official web site.

Kentucky Saving For College Report In 2022

We discuss the tax benefits, trends, do’s and don’ts and various plan options of setting up a 529 college savings plan in Kentucky

As parents, grandparents and students we know college is coming and that we’re somehow going to have to pay for it someday. Fortunately we have many options available to us including savings bonds, the stock market and 529 plans. Starting a 529 account now is always the best option, no matter how old you is. While playing the stock market may yield higher returns on your investment, placing your money into a 529 plan allows it to grow in a tax free environment. One study even found that when the federal tax benefits were taken into consideration, 529 plans outperformed their benchmarks in every category.

Kentucky has it’s own state-operated 529 plan called Kentucky Education Savings Plan Trust. It is important to note that your child does not have to go to a KY college or university in order to use this savings account. 529 plan funds can be used at any accredited college or university across the nation, including some K-12 private schools!

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What Happens If You Dont Use Your 529 Plan

If your son or daughter ends up not going to collegeor is fortunate enough to get a large scholarshipyou can transfer the account to another child or save it for a grandchild. You can also use the money to fund your own education, should you decide to go back to school. Theres also the option of withdrawing funds and using them for noneducational purposes, but theres a big downside: Youll likely have to pay income taxes and a 10% penalty on earnings.

How To Choose A 529 Plan

When it comes time to choose the best 529 plan for your family, look at whatâs available within your home state first. Many plans offer special incentives such as tax breaks for state residents, so you may find a better deal by starting your search at home.

Once youâve noted the details of your home stateâs plan, compare it to other statesâ offerings. As you review each 529 plan, pay attention to the following factors.

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Do I Need A Kentucky 529 Plan For Every Child

You dont need a Kentucky 529 plan for each child but you may find it easier to administer if you do. You can only have one named beneficiary on a Kentucky 529 plan. The risk and mix of equities to fixed income of certain investment options is determined by the age of the beneficiary. For this reason, you may want to have a different 529 plan for each child.

You may be interested to know that multiple people can open accounts for the same beneficiary.

How Do Financial Aid And Scholarships Affect A Kentucky 529 Plan

A 529 plan can affect financial aid, but the impact is dependent on the account owner and their tax situation, not the beneficiary.

If the account is held by the parent or guardian of the student, funds within are considered parental assets. The Expected Family Contribution calculation for parent assets is a maximum of only 5.64% versus 20% for the students assets.However, if the 529 plan is held by a grandparent or extended family member, while the assets are not taken into account for the FAFSA EFC, distributions from these accounts qualify as student income, which is assessed at 50%.

529 accounts do not affect merit-based scholarships. Other scholarships may depend based on the school.

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Are There Any Downsides To Using A 529 Plan

As with any investment, there is always risk. 529 plans can be structured in a variety of ways, so you can minimize the risk of losing any of your initial investment by choosing an option that works with your financial situation, and with your student’s future. If you end up using the earnings for something other than qualified higher educational expenses, then they will be subject to federal taxes.

Who Is Eligible For A 529 Plan State Income Tax Benefit

States typically offer state income tax benefits to any taxpayer who contributes to a 529 plan, including grandparents or other loved ones who give the gift of college. However, in 10 states only the 529 plan account owner may claim a state income tax benefit.

Eligible taxpayers may continue to claim a 529 plan state income tax benefit each year they contribute to a 529 plan, regardless of the beneficiarys age. There are no time limits imposed on 529 plan accounts, so families may continue to make contributions throughout the childs elementary school, middle school, high school, college years, and beyond.

State income tax benefits should not be the only consideration when choosing a 529 plan. Attributes such as fees and performance must always be taken into account before you enroll in a 529 plan. In some cases, better investment performance of another states 529 plan can outweigh the benefits of a state income tax deduction.

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Kentucky 529 Plan And College Savings Options

Kentucky has a 529 plan called KY Saves 529 that can help you save for college. Kentucky also has a 529 Able Plan as well.

If you live in Kentucky, these might be good options for you to save for college.

These programs are designed to help make college more affordable – so that you can get the education you need. By saving for college early on, you can make paying for college easier down the road.

If you’re not quite sure how 529 plans work, check out this starter guide to What Is a 529 Plan?

There is also a specific order of operations to save for college that we recommend families follow. These programs are specific to the State of Kentucky. Each state has different rules when it comes to 529 plan savings.

Federal Deductions For 529 Plans

There is no federal deduction for contributions to a 529 account. At the federal level, contributors should keep in mind that contributions may be subject to federal gift tax laws. In tax year 2022, you can give up to $16,000 to someone before the gift tax kicks in, or $32,000 for married couples combining gifts. The limit is $17,000 in 2023.

At the state level, many states offer a deduction, and a few states offer a credit. Deductions typically will only be relevant if they help the contributor bypass the states standard deduction level. Credits offer the greatest advantage as they are subtracted from the amount of tax a taxpayer owes overall.

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