- There are two types of IRS Section 529 tax-advantaged college tuition savings plans: a savings and investment plan and a prepaid tuition plan. Kansas does not offer a prepaid tuition plan. Learning Quest, the Kansas state 529 tuition savings plan, is managed by American Century Investment Management as of 2011. The plan offers several investment options and age-based investment strategies.
- The earnings of a qualified 529 college tuition savings plan, including the Kansas state tuition savings plan, are exempt from federal income tax. The amount contributed to the tuition savings plan is not tax-deductible. Distributions of earnings from a qualified 529 college tuition savings plan are also exempt from federal income tax, as long as they are used for qualified higher education expenses. The college the student attends does not need to be in Kansas for the federal tax benefits to apply.
- Kansas taxpayers investing in the Kansas state tuition savings plan receive an adjusted gross income deduction for their contributions. Kansas taxpayers filing singly can deduct up to $3,000 per plan beneficiary per year, and a married couple can deduct up to $6,000 per year per beneficiary. For example, if a couple contributes to two different tuition savings accounts with Learning Quest for two different children, they would be able to deduct $12,000 from their adjusted gross income on their annual Kansas tax return.
- Investment earnings in the Kansas state tuition plan grow tax-deferred at the Kansas and federal level. Contributions of up to $13,000 per year per beneficiary are exempt from gift tax at the state and federal level. Larger one-time gifts of up to $65,000 per individual and $135,000 for a spousal contribution may be made in a single year without being subject to gift tax, provided that IRS Form 709 for gift tax is filed appropriately.
previous post