The Utah Educational Savings Plan (UESP) offers tax benefits that can help you get more out of your college savings.
Earnings on your account grow tax deferred, and withdrawals are exempt from federal income taxes as long as the money is used for qualified higher education expenses.
Utah State Income Tax Advantages
For 2013, Utah individual taxpayers/residents and trusts may claim a 5% state income tax credit on contributions up to $1,840 per qualified beneficiary, equaling $92. For taxpayers married filing jointly, the 5% credit may be claimed for contributions of up to $3,680 per qualified beneficiary, equaling $184. It is not required that married couples taking the tax benefit have separate UESP accounts to claim the joint tax benefit. Utah corporations are eligible for a tax deduction up to $1,840 in contributions per qualified beneficiary. A joint tax benefit is not allowed for institutional (trusts and corporations) accounts. To qualify for the credit or deduction, the beneficiary on the account must have been designated as such before age 19.
In addition, if you’re a Utah taxpayer/resident, earnings on your account are also exempt from Utah state income taxes when used for qualified higher education expenses. Since these Utah state income tax benefits are only available to Utah taxpayers/residents, taxpayers of other states should consider whether the state in which they or their beneficiaries live or pay taxes offers a 529 plan that would provide them with tax or other benefits not available to them by investing in the Utah Educational Savings Plan.
Gift Tax Considerations
Funds contributed to UESP are treated as a completed gift to the beneficiary for federal estate and gift tax purposes.
Normally, up to $14,000 ($28,000 if filing jointly) may be gifted from one individual to another each year without incurring gift tax liability. A special provision for 529 plans allows an individual to give $70,000 ($140,000 if married filing jointly) to a single beneficiary in one year without creating a taxable gift, as long as the individual makes an election to treat the entire gift as a series of five equal annual gifts. This means that a $70,000 five-year averaging election counts as a series of five $14,000 contributions, and a $140,000 five-year averaging election counts as a series of five $28,000 contributions. However, the individual cannot make any additional gifts to that beneficiary during the five-year period without being subject to federal gift tax rules.
Estate Tax Considerations
Generally, the assets held in an account are not considered part of the account owner’s estate, though the account owner remains in control of the funds.
For more information, please see Part 9: Tax Considerations in the Program Description.