Is There a Kansas 529 Tax Deduction for State Income Taxes?

Saving for education can be expensive, but 529 plans offer tax advantages that help families set aside money for future costs. Kansas residents who contribute to a Kansas-sponsored 529 plan may also benefit from state income tax deductions, reducing their taxable income.

Deduction Eligibility

Kansas taxpayers who contribute to the Learning Quest 529 Education Savings Program or the Schwab 529 Plan, both sponsored by the state, can deduct contributions from their Kansas adjusted gross income. For the 2024 tax year, the deduction limit is $3,000 per beneficiary for single filers and $6,000 per beneficiary for married couples filing jointly. A married couple contributing $6,000 for one child and another $6,000 for a second child can deduct a total of $12,000 from their state taxable income.

Only contributions made during the tax year qualify, and they must come from the account owner. If grandparents or other relatives contribute but are not the account owners, they cannot claim the deduction. However, they can gift funds to the account owner, who can then contribute and claim the deduction.

There are no income restrictions, meaning all Kansas taxpayers can take advantage of the deduction. The beneficiary does not need to be a Kansas resident, allowing account owners to save for out-of-state students while still benefiting from the tax break.

Qualifying Educational Costs

Funds withdrawn from a Kansas 529 plan must be used for qualified education expenses to remain tax-free. The IRS defines these costs under Section 529 of the Internal Revenue Code.

Tuition and Fees

Tuition and mandatory fees at accredited postsecondary institutions, including universities, colleges, vocational schools, and certain apprenticeship programs, qualify. Both public and private institutions are eligible as long as they participate in federal student aid programs.

For example, if a student’s tuition is $10,000 and mandatory fees are $1,500, they can withdraw $11,500 tax-free from a Kansas 529 plan. Payments can be made directly to the institution or reimbursed to the account owner, provided proper documentation is maintained.

Kansas 529 funds can also cover up to $10,000 per year in K-12 tuition at private or religious schools. This limit applies per beneficiary, so a family with two children in private school can withdraw up to $20,000 annually for tuition expenses without incurring taxes or penalties.

Books and Supplies

Required textbooks, lab materials, and other necessary supplies qualify if explicitly required for enrollment or attendance. This includes items like scientific calculators for engineering students, art supplies for design majors, and software programs mandated by a course syllabus.

For instance, if a course requires a $200 textbook and a $150 software license, both expenses can be covered using 529 funds. Optional materials, such as supplementary study guides, do not qualify unless explicitly listed as required by the institution.

Computers, laptops, and internet access are also eligible if used primarily for educational purposes. A student purchasing a $1,000 laptop for coursework can use 529 funds to cover the cost, provided they retain receipts and proof of necessity. Gaming consoles, televisions, and other non-educational electronics do not qualify.

Room and Board

Housing expenses are eligible if the student is enrolled at least half-time at an eligible institution. This includes on-campus dormitory costs and off-campus rent, provided it does not exceed the school’s published cost of attendance for housing.

For example, if a university lists an annual room and board allowance of $12,000, a student living off-campus can withdraw up to that amount tax-free, even if their actual rent is higher. Utilities and food expenses are also covered, but luxury accommodations or excessive costs beyond the school’s stated allowance are not.

Meal plans purchased through the institution qualify, as do grocery expenses for students living off-campus, as long as they fall within the school’s estimated cost of attendance. However, dining out and restaurant meals are not considered eligible expenses. Keeping detailed records of rent payments and food costs ensures compliance with IRS guidelines.

Contribution Limits

Kansas 529 plans allow generous contribution limits, enabling families to save substantial amounts for future education expenses. The maximum aggregate balance per beneficiary for Learning Quest and the Schwab 529 Plan is $455,000 as of 2024. Once an account reaches this limit, additional contributions are not permitted, though earnings can continue to grow.

While there is no annual contribution limit imposed by the state, federal gift tax rules apply to larger contributions. In 2024, individuals can contribute up to $18,000 per beneficiary annually without triggering federal gift tax consequences. Married couples electing to split gifts can contribute up to $36,000 per year.

A special five-year front-loading election allows contributors to deposit up to $90,000 ($180,000 for couples) in a single year without exceeding the annual gift tax exclusion, provided no additional gifts are made to the beneficiary over the next four years. This strategy can be useful for grandparents or other relatives looking to maximize funding while minimizing estate tax implications.

Earnings within a Kansas 529 plan grow tax-deferred, meaning contributors do not pay federal or state taxes on investment gains as long as funds remain in the account. This allows for compounded growth over time. For example, if a family contributes $5,000 annually from birth and earns an average return of 6% per year, the account could grow to approximately $154,000 by college, even though only $90,000 was contributed.

Filing the Deduction

Kansas taxpayers claiming the 529 contribution deduction must report their contributions on their state income tax return using Schedule S, which adjusts Kansas adjusted gross income (KAGI). Contributions should be entered in Part C, under “Subtractions from Federal Adjusted Gross Income,” specifically in the section designated for 529 plan deductions.

Proper documentation is necessary to substantiate the deduction if requested by the Kansas Department of Revenue. Account statements showing contribution dates and amounts serve as primary evidence, while bank records or payroll deduction reports provide additional verification. Those making contributions near the end of the year should ensure transactions are processed before December 31, as only funds received by the plan administrator within the calendar year qualify.

The deduction is an above-the-line adjustment, meaning all taxpayers can claim it regardless of whether they take the standard deduction or itemize. Kansas does not require additional supporting forms beyond Schedule S when filing, though tax software typically includes prompts for 529 contributions to streamline reporting.

Nonqualified Distributions

Withdrawing funds for nonqualified expenses can result in financial penalties. Earnings on nonqualified distributions are subject to federal income tax and a 10% penalty. Kansas also requires taxpayers to add back any previously deducted contributions to their state taxable income if funds are not used for qualified expenses.

For example, if a taxpayer deducted $6,000 in contributions over several years and later withdrew $10,000 for non-educational purposes, they would need to report the $6,000 as taxable income on their Kansas return while also paying federal taxes and penalties on the earnings portion of the withdrawal.

There are exceptions to the 10% federal penalty, including cases where the beneficiary receives a scholarship, attends a U.S. military academy, or becomes disabled. In these situations, the penalty is waived, but income tax on earnings still applies. If a student receives a $5,000 scholarship, the account owner can withdraw that amount from the 529 plan without incurring the penalty, though the earnings portion remains taxable. Proper documentation, such as scholarship award letters, must be retained to justify the exception in case of an IRS audit.