529 Plans

529 plans are state sponsored accounts where you can deposit funds meant to be used for education expenses. As long as the withdrawals from the account are for education expenses, any earnings on the account is exempt from income tax. In addition to avoiding income tax on the growth of the account, Kansas residents are eligible for a deduction against their kansas income tax.

Qualified education expenses can include:

  • Tuition

  • Fees

  • Books

  • Room and Board

  • Private School (K-12) Tuition

But what if the child does not go to college? 529 accounts can be transferred to other beneficiaries. So if the original beneficiary does not attend secondary schooling, that account can be transferred to another who may use it. If that is not an option, the earnings portion of distributions not used for qualified education expenses are subject to income tax, as well as a 10% penalty. 

For a number of years instead of buying my nieces and nephews birthday and Christmas gifts, I contribute to their 529 account. The younger children are disappointed to not receive gifts, but the older ones get excited to see how much the account has grown.

Every scenario is different, therefore this general advice cannot be applied directly to your situation and is not intended to be tax advice. If you have concerns about 529 plans, it is best practice to consult with a tax professional.