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Facts About Kentucky's 529 Plan

By    |   Wednesday, 20 May 2015 11:53 AM

Saving for college can be a daunting task in today's economy. With the escalating costs of higher education, Kentucky set out to provide a way to tuck a few extra dollars away so that college is within reach – through the 529 program Kentucky Education Savings Plan Trust, KESP.

The 529 tax-advantaged savings plans are authorized by the IRS and legally known as "qualified tuition plans," and are sponsored by states, state agencies, or educational institutions. They may differ between states on what they offer and entail.

Additionally, 529 plans come in two forms: pre-paid tuition plans and college savings plans. Every state and the District of Columbia sponsor at least one type of 529 plan as do private colleges and universities.

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Here are some facts about Kentucky's 529 plan to consider:

1. Contributions to KESP and earnings are federal and state income-tax free until withdrawn. Distributions from KESP used for qualified higher education expenses are free from federal and state income tax. Non-qualified withdrawals may be subject to federal and state taxes and an additional 10 percent federal tax.

2. Anyone with a Social Security Number or federal taxpayer identification number who is a United States citizen or resident alien can contribute to KESP on behalf of any beneficiary. Trusts and estates may also open an account. KESP offers six investment options that vary in strategy and degree of risk, according to the Kentucky Education Savings Plan Trust website. KESP contributions can be made through payroll deduction.

3. Money accrued in the account can be used at any qualified higher education institution. That includes public and private colleges and universities. It can even be used for graduate school, community college and certain proprietary and vocational schools. KESP contributions may help reduce the taxable value of estates.

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4. KESP contributions may qualify for annual federal gift tax exclusions
of $14,000 per donor (or $28,000 for married couple contributions). Non-qualified withdrawals are subject to federal income tax.

5. There are six plan investment options that can be changed each time a contribution to the plan is made. Additionally options and earnings can be transferred to another investment option twice in a calendar year.

6. KESP is not subject to sales charges, start up or maintenance fees. However, an annual asset-based management fee is paid to TIAA-CREF Tuition Financing Inc. that ranges from .56 percent to .91 percent. Account caps are set at $350,000, and apply to all accounts assigned to any singe beneficiary. Contributions to KESP can be made through automatic contribution plan, electronic funds transfer or through rollover. The minimum contribution to the KESP 529 plan is $125 per investment option with subsequent investments of $25 – $15 can be made per pay period using payroll deduction.

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Saving for college can be a daunting task in today's economy. With the escalating costs of higher education, Kentucky set out to provide a way to tuck a few extra dollars away so that college is within reach - through the 529 program Kentucky Education Savings Plan Trust, KESP.
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