The Kansas Department of Revenue has confirmed that the Kansas tax code will reflect the federal tax reform changes that allow families to use 529 Education Savings Accounts to fund K-12 private education. Previously, 529 plans could only be used for higher-education expenses.
Kansans are now allowed to withdraw up to $10,000 to be withdrawn for the beneficiary's "qualified" K-12 expenses each year from their 529 Education Savings Account(s). If you are not a Kansas taxpayer, please consult with a tax advisor, as state tax treatment of K-12 withdrawals is determined by the state(s) where the taxpayer files state income tax. Not all states have officially adopted this federal tax provision.
Regardless of if you use 529 plan funds for K-12 or college expenses, the following tax benefits apply:
State Income Tax Deduction. Kansas taxpayers receive an annual adjusted gross income deduction of up to $3,000 (or $6,000 if you're married and filing jointly) for contributions per year, per child.
Example: A married couple sends all three of their children to a private school whose annual tuition is $5,000/child. By utilizing 529 savings accounts instead of paying the tuition directly out of pocket, the couple might save $850/year in state income tax assuming their marginal Kansas tax rate is 5.7% in 2018. This would be a $4,250 tax savings over a 5 year period!
Tax-Deferred Growth. Your 529 contributions can be invested and the earnings grow free of federal and state income taxes while in the account.
Tax-Free 529 Withdrawals. No income tax is paid on the growth of your 529 savings/investment so long as the withdrawals are used for “qualified” 529 expenses.
Have questions about saving for your children’s or grandchildren’s education? Call or email us today!
John Miller, CFP® | John@LongviewAdvice.com | 620.931.5285