Probate & Trust Law Section Conference Manual ... - Minnesota CLE

and the beneficiary’s family during any of the years the beneficiary
is enrolled at an eligible educational institution. This expansion
applied only to expenses paid or incurred during 2009 or 2010 and
is not currently in effect.
d. Transportation. The cost of transportation to and from school is
not a QHEE.
e. Student Loans. The repayment of student loans is not a QHEE.
f. Special Needs Expenses. Expenses necessary to permit a special
needs beneficiary to attend an eligible educational institution are
QHEEs.
g. QTP Contributions. QHEEs include contributions to a QTP.
h. Coverdell ESA Contributions. QHEEs include contributions to a
Coverdell ESA.
VII.
Tax Basics of 529 Accounts
A. Income Taxation of 529 Savings Accounts
1. Contributions
a. No Federal Deduction. Contributions to a section 529 account
are not deductible for federal income tax purposes.
b. State Deductions. In some states, contributions are deductible for
state income tax purposes, often subject to a cap and sometimes a
carryforward is permitted for contributions in excess of the cap.
Generally deductions are permitted only for contributions to the
QTP in the taxpayer’s state of residence. In some states, only
contributions by the account owner (or the account owner’s spouse
or the beneficiary’s parent, depending upon the state) are
deductible.
2. Federal Income Tax Exemption. The income earned on a section 529
account and distributions from a section 529 account are not subject to
federal income tax, provided they are used to pay QHEEs at an eligible
educational institution (“qualified distributions”). Code § 529(a); Code
§ 529(c).
3. State Taxation of Account. Some states base the state income tax on
federal taxable income, federal adjusted gross income or federal tax
liability. In these states, the annual income earned on a section 529
account and qualified distributions should not be subject to state income
tax (absent a special provision in state law subjecting it to income tax). In
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