Come July 14, parents, family, friends and others can set up and contribute to a tax-exempt Kentucky Education Savings Plan Trust offered by the state.
The education fund will, for the first-time in Kentucky, allow people to save money to help pay for K-12 tuition without paying taxes on the money. Deposits into the fund are tax-free and remain so as long as they are spent on education-related expenses tied to school attendance.
While that can mean books, certain room and board fees and required technology for college students, the Kentucky Education Savings Plan Trust’s website defines “qualified education expenses” for K-12 students as tuition only. Because public schools don’t have tuition, the fund is beneficial solely to those who can send their children to private and parochial schools.
The Kentucky General Assembly changed the law during the 2018 session to expand the use of the Kentucky Education Savings Plan Trust, also known as a 529 plan, to elementary, middle and high school. Funds from the trusts could previously only be used for higher education.
Parents can withdraw as much as $10,000 a year from the education fund to pay for K-12 tuition, and each donor can place up to $15,000 in the trust each year to receive an annual federal gift tax exclusion.
“We encourage families to start saving for educational cost while their children are young, and timing is certainly a factor if a family is saving for K-12 tuition,” David Lawhorn, program manager for Kentucky Education Savings Plan Trust, said in a news release. The trust “offers many advantages for Kentucky residents, and this new law gives families an opportunity to leverage those benefits for many years.”
Anyone can open an account for a student or future student with an initial deposit of $25 or by opting to automatically deduct at least $15 per pay period from his or her paycheck. Others also can donate toward an existing Kentucky Education Savings Plan Trust.
Should the beneficiary of the education fund not use all the money in the account, then it can be transferred to an eligible family member.
There is no state income tax deduction tied to these funds, and a management fee ranging from 0.56 percent to 0.91 percent is charged annually.