The Kansas 529 Tax Deduction - Tax Benefits for Using the KS 529 Plan

Rules for Claiming the Kansas 529 Learning Quest Income Tax Deduction

Families putting together a college savings plan often consider 529 Plans, which offer tax-advantaged ways to save money, as a potential option. If enough money is saved through this vehicle, there is less stress at admissions time about applying for financial aid or searching for scholarships. Investments made in these accounts will grow free of federal and state income taxes. In addition, all withdrawals used for qualified higher education expenses are exempt from federal income tax.

Some 35 states also waive state taxes on withdrawals, along with offering other incentives. Other benefits of 529 plans include:

  • The account holder retains control of the assets within the program regardless of the beneficiary’s age.
  • Most plans have low minimum monthly contribution limits.
  • The beneficiary can be changed at any time to another member of the beneficiary’s family.
  • Money can be used at virtually any accredited college in the country to pay for a variety of college expenses, including tuition, room, board, books, fees, supplies and required equipment.
  • Assets within 529 plans are protected from bankruptcy.
  • Account owners can make a lump sum contribution of up to $70,000 per beneficiary, or $140,000 if married filing jointly, and avoid incurring a Gift Tax on this amount by electing to use five years of the annual gift tax exclusion all in one year.

Kansas has three 529 college savings plans:

  • Learning Quest: This is a direct-sold savings plan which is administered by the Kansas State Treasurer and managed by American Century Investments. Individual investors can choose from four age-based tracks and 13 static options ranging from aggressive to short-term, including a money market portfolio.
  • Learning Quest Advisor: Sold only through advisors, the Learning Quest Advisor Plan is also managed by American Century Investment Management Inc. Investors can choose from three age-based tracks, 8 static options ranging from aggressive to short-term, and 12 individual fund options.
  • Schwab 529 College Savings Plan: This is a direct-sold savings plan which is managed by American Century Investment Management Inc. and distributed by Charles Schwab & Co. Inc. The Plan utilizes a variety of mutual fund families in its age-based and static portfolio options.

According to the Kansas State Treasurer, the state believes this is one of the most comprehensive education investing programs in the nation. The Treasurer states that the Learning Quest 529 Education Savings Program has been designed with features and benefits to make investing for college a reality. Its benefits include: diversified and professionally managed investments, easy and convenient ways to invest, federal and state tax advantages, multigenerational estate planning, and the fact that savings can be used for qualified expenses at accredited four-year and community colleges, and vocational and technical schools throughout the United States.

The Kansas 529 program allows annual tax deductions of up to $3,000 for single filers or $6,000 for joint filers. The maximum contribution limit for all Kansas plans is $365,000. Kansas also follows federal treatment, so that qualified withdrawals are tax free. Through the KIDS (Kansas Investments Developing Scholars) Matching Grant Program, the state provides matching funds for contributions to a Learning Quest account of more than $100, up to $600 per year. This program is for families whose income is below 200 percent of the federal poverty line. It only accepts 300 applicants, with applications due by December 31.

Kansas residents deciding whether or not to use the Kansas 529 Plan versus other savings vehicles need to account for the potential tax savings of the Kansas income tax deduction.

Considering that the top income tax bracket in Kansas is currently 4.6%, each $3,000 contribution may save a taxpayer up to $138 at tax time.

As of the 2015 KS state income tax returns, you need to file Schedule S, Kansas Supplemental Schedule, to claim your 529 tax deduction. Go to Line A21, “Contributions to Learning Quest or other states’ qualified tuition program.” The Kansas 529 Learning Quest deduction is an "above the line" income adjustment, meaning residents can claim it even if they use the standard deduction and do not itemize their other deductions.