Kentucky Education Savings Plan Trust

Frequently Asked Questions - Tax Considerations

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What are the federal and state tax advantages?
When you contribute to KESPT, your account earnings have the opportunity to grow federal and Kentucky state income tax-deferred until withdrawn. Earnings on any distributions used to pay for qualified higher education expenses will be free from federal and Kentucky state income tax. This federal income tax-free treatment of qualified withdrawals and other federal tax benefits are permanently in place for 529 plans through the passage of the Pension Protection Act of 2006.


Is there a Kentucky income tax deduction?
No, there is no Kentucky income tax deduction.


What are the federal estate and gift tax benefits?
Contributions to KESPT may help you reduce the taxable value of your estate. Contributions to KESPT, together with all other gifts from the account owner to the beneficiary, may qualify for an annual federal gift tax exclusion of $13,000 per donor, per beneficiary. If an account owner's contribution to a KESPT account for a beneficiary in a single year exceeds $13,000, the account owner may elect to treat up to $65,000 of the contributions, or $130,000 for joint filers, as having been made over a period of up to five years for federal gift tax exclusion. Consult your tax advisor.
 

Are contributions to KESPT federal tax deductible?
No, contributions to KESPT or any 529 plan are not deductible for federal income tax purposes.


How are withdrawals for qualified higher education expenses taxed?
If you are taking a withdrawal to pay for qualified higher education expenses of the beneficiary, there will be no federal or Kentucky income tax. Use the Withdrawal Request form (PDF, 81KB).


How are withdrawals for non-qualified expenses taxed?
If funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary's death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example, if an ineligible beneficiary is named), there will be a 10% additional federal tax on the earnings portion of the distribution.


What is the Generation Skipping Tax?
Transfer of funds or a change in beneficiary is subject to the Generation Skipping Tax (GST) if the new beneficiary is two or more generations below the prior beneficiary. If transfer is subject to GST, tax is imposed on the prior beneficiary. Account owners should consult their own tax advisors for guidance when considering a change of beneficiary or a transfer to another account.



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Have a question you don't see listed? Need clarification?

Call us toll-free at
1-877-KY TRUST
(1-877-598-7878)

We're available 8:00 am - 8:00 pm Eastern Time, Monday - Friday.


Don't forget you can set up an Automatic Contribution Plan (PDF, 157KB) or use Payroll Deduction (PDF, 45KB) for your contributions (if offered by your employer).

PDF files require the free Adobe Acrobat Reader. Get it here.

Access our glossary for the meanings of terms used throughout this site.

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The tax information contained on the Kentucky Education Savings Plan Trust (the Plan) Web site is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed in the Web site. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

The Plan is administered by the Kentucky Higher Education Assistance Authority. TIAA-CREF Tuition Financing, Inc. (TFI) serves as Program Manager.

The investment approaches described are not recommendations and do not take into consideration personal goals or preferences. After evaluating information you consider important in making an investment choice, the ultimate decision is up to you. It is a good idea to revisit your investment strategy periodically as your goals, personal financial situation, and market conditions change.

Consider the investment objectives, risks, charges and expenses before investing in the Plan. Please call toll-free 1-877-KY TRUST (1-877-598-7878) for a Disclosure Booklet containing this information. Read it carefully.

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state's 529 plan.

The Commonwealth of Kentucky, its agencies, TIAA-CREF Tuition Financing, Inc., Teachers Insurance and Annuity Association of America and its affiliates do not insure any account or guarantee its principal or investment return except for TIAA-CREF Life Insurance Company’s guarantee to the Kentucky Education Savings Plan under the funding agreement for the Guaranteed Option. Account value will fluctuate based upon a number of factors, including general market conditions.

The Plan Web site is for informational purposes only, and does not constitute an offer to sell or solicitation of an offer to buy any security that may be referenced on the site. Such offer or solicitation can be made only through the Disclosure Booklet.

The Plan Web site contains links to other Web sites. Neither the Plan Trust nor TFI and its affiliates are responsible for the content of those other Web sites. The accuracy of information on those sites cannot be confirmed.

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© 2010 TIAA-CREF Tuition Financing Inc.