Minnesota College Savings Plan

Frequently Asked Questions - Tax Considerations
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What are the federal and state tax advantages?
When you contribute to the Minnesota College Savings Plan, your account earnings have the opportunity to grow federal and Minnesota income tax-deferred until withdrawn. The earnings portion of any distributions used to pay for qualified higher education expenses will be free from federal and Minnesota income tax. This federal income tax-free treatment of qualified withdrawals and other federal tax benefits are now permanently in place for 529 plans through the passage of the Pension Protection Act of 2006.


Is there a Minnesota income tax deduction?
No, there is no Minnesota income tax deduction.


What are the federal estate and gift tax benefits?
Contributions to the Minnesota College Savings Plan may help you reduce the taxable value of your estate. Contributions to the Minnesota College Savings Plan, together with all other gifts from the account owner to the beneficiary, may qualify for an annual federal gift tax exclusion of $12,000 per donor, per beneficiary for 2008. If an account owner's contribution to a Minnesota College Savings Plan account for a beneficiary in a single year exceeds $12,000, the account owner may elect to treat up to $60,000 of the contributions, or $120,000 for joint filers, as having been made over a period of up to five years for federal gift tax exclusion.


Are contributions to the Minnesota College Savings Plan federal tax deductible?
No, contributions are not deductible for federal income tax purposes.


How are withdrawals for qualified higher education expenses taxed?
If you are taking a withdrawal to pay for qualified higher education expenses of the beneficiary, there will be no federal or Minnesota income tax. This federal income tax-free treatment of qualified withdrawals and other federal tax benefits are now permanently in place for 529 plans through the passage of the Pension Protection Act of 2006. Use the Withdrawal Request form (PDF, 81KB).


How are withdrawals for non-qualified expenses taxed?
If funds are withdrawn for a purpose other than to pay for qualified higher education expenses (except in the event of a beneficiary's death, disability, scholarship or attendance at a military academy), or they are treated as withdrawn (for example, if an ineligible beneficiary is named), there will be a 10% additional federal tax on the earnings portion of the distribution.

For Minnesota tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution. Use the Withdrawal Request form (PDF, 81KB).


What is the Generation Skipping Tax?
Transfer of funds or a change in beneficiary is subject to the Generation Skipping Tax (GST) if the new beneficiary is two or more generations below the prior beneficiary. If transfer is subject to GST, tax is imposed on the prior beneficiary. Account owners should consult their own tax advisors for guidance when considering a change of beneficiary or a transfer to another account.


What is the "sunset provision" and how does it affect the federal income tax treatment of 529 Plans?
Federal income tax-free treatment of qualified withdrawals and other federal tax benefits are now permanently in place for 529 plans through the passage of the Pension Protection Act of 2006. The Sunset Provision is the provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that stated that the law allowing federal income tax-free qualified withdrawals was set to expire December 31, 2010.  For more information, see the Minnesota College Savings Plan Disclosure Booklet and Participation Agreements (PDF, 773KB).


Read more FAQs.

 
 
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Have a question you don't see listed? Need clarification?

Call us toll-free at
1-877-338-4646

We're available 7:00 am to 7:00 pm Central Time, Monday - Friday.


Don't forget you can set up an Automatic Contribution Plan (PDF, 50KB) or use Payroll Deduction (PDF, 46KB) for your contributions (if offered by your employer).

PDF files require the free Adobe Acrobat Reader. Get it here.


Access our glossary for the meanings of terms used throughout this site.

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The tax information contained on the Minnesota College Savings Plan Web site is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed in the Web site. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

Consider the investment objectives, risks, charges and expenses before investing in the Minnesota College Savings Plan. Please call toll-free 1(877) 338-4646 for a Disclosure Booklet containing this information. Read it carefully.

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state’s 529 plan.

TIAA-CREF Individual & Institutional Services, LLC, distributes Minnesota College Savings Plan. The State of Minnesota, its agencies, TIAA-CREF Tuition Financing, Inc., Teachers Insurance and Annuity Association of America and its affiliates do not insure any account or guarantee its principal or investment return except for TIAA-CREF Life Insurance Company’s guarantee to Minnesota College Savings Plan under the funding agreement for the Guaranteed Option. Account value will fluctuate based upon a number of factors, including general market conditions.

The Minnesota College Savings Plan Web site contains links to other Web sites. Neither Minnesota College Savings Plan nor TIAA-CREF Tuition Financing, Inc. and its affiliates are responsible for the content of those other Web sites. The accuracy of information on those sites cannot be confirmed.

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© 2007 TIAA-CREF Tuition Financing, Inc. TIAA-CREF Individual & Institutional Services, LLC, distributes Minnesota College Savings Plan. 2008 TIAA-CREF Tuition Financing Inc.