Utah Educational Savings Plan

Tax Considerations

As a qualified tuition program under Section 529 of the Internal Revenue Code (IRC), UESP is designed to provide account owners and beneficiaries with federal tax benefits. Earnings on UESP accounts grow tax deferred from federal and Utah state income taxes. Withdrawals are exempt from federal and Utah state income taxes when used for qualified higher education expenses of the beneficiary at an eligible educational institution. The information below is a summary of the tax considerations found in Part 9 | Tax Considerations of the Program Description. You should encourage your clients to consult with their own tax advisors regarding their individual tax situations before investing in UESP.

Estate Planning & Gift Tax Considerations

Money invested in a UESP account is treated as a completed gift to the beneficiary for federal estate and gift tax purposes. Generally, the assets held in an account are not included as part of a person’s estate, though the account owner remains in control of the funds. Because the funds are considered to be a completed gift, gift tax and generation-skipping transfer tax rules apply.

A special provision for 529 plans allows a person to make a gift of $70,000 ($140,000 if married filing jointly) to a single beneficiary in one year without creating a taxable gift if the person makes an election on IRS Form 709 to treat the entire gift as a series of five equal annual gifts. The person cannot make any additional gifts to that beneficiary during the five-year period without being subject to federal gift tax rules.

Maximum Account Balance

For calendar year 2016, UESP will accept contributions to an account until all UESP account balances for the same beneficiary total $418,000. This maximum is typically adjusted annually. An account balance may exceed the maximum amount as a result of market performance, but no additional contributions will be accepted. If the account balance drops below the maximum account balance, additional contributions can be made to the UESP account(s).

Beneficiary Change

Section 529 allows an individual account owner or institutional account agent to change the beneficiary without adverse income tax consequences, as long as the new beneficiary is a "member of the family" of the preceding beneficiary, as defined by Section 529 of the IRC.

No Income Limits

There are no income limits to participate in a 529 plan.

Utah State Income Tax Benefits

Utah taxpayers who are account owners, including Utah trusts, may claim a Utah state income tax credit on contributions to UESP accounts. Utah corporations may claim a Utah state income tax deduction for contributions to their UESP accounts. These state income tax benefits are not available to Utah taxpayers for contributions to other (non-UESP) 529 plans.

The table below outlines the 2016 Utah state income tax benefits. The credit and deduction amounts are adjusted annually based on changes in the Consumer Price Index (CPI).

Tax Filer Utah Tax Credit Percentage 2016
Maximum Qualifying Contribution* Maximum Utah Tax Credit* Maximum Utah Tax Deduction*
Single 5% $1,900 $95  
Joint 5% $3,800 $190  
Trusts 5% $1,900 $95  
Corporations       $1,900

*Per qualified beneficiary

The beneficiary must be younger than age 19 when designated on the account for the account owner to claim a Utah state income tax credit or deduction for contributions made to the beneficiary’s account. If this requirement is met, the account owner is eligible for the Utah state income tax credit or deduction each year a contribution is made for the life of the beneficiary’s account.

Non-Utah taxpayers and residents should determine whether the state in which they or their beneficiary pays taxes or lives offers a 529 plan that provides state tax or other benefits not otherwise available to them by investing in UESP. They should consider such state tax treatment and benefits, if any, before investing in UESP.

Recontribution of Funds

If a student withdraws from school due to unforeseen circumstances and receives a refund of qualified higher education expenses (e.g., tuition) that had been paid with 529 savings, the account owner can recontribute the funds into the same account. The funds would not be deemed a nonqualfied withdrawal, or be subject to any taxes or tax penalties. The money must be redeposited within 60 days of the date of the refund, and the recontribution cannot exceed the amount of the refund. It is recommended that account owners keep a receipt of refunds in order to have documentation of the amount of the refund and the date it was issued.