Kentucky does not have its own 529 plan for private colleges. However, the Private College 529 national plan has two participating schools in Kentucky: Centre College and Transylvania University. Kentucky students can also attend any of the other 270+ private schools that participate in the plan since tuition at private colleges and universities is the same for in-state and out-of-state residents. When you invest in the Private College 529 plan you buy certificates worth one semester of tuition. You then redeem these certificates for one semester when you need it, regardless how much tuition is at that time.
The Kentucky Education Savings Plan Trust (KESPT) is a plan that gives you a tax break when you use the funds. You invest through the years, and when you are ready to pay college tuition, you do not owe income tax on the money you withdraw. The minimum investment when opening the account is $25, or $15 if you arrange for an automatic payroll deduction. The amount you can invest is $235,000 per beneficiary as of March 2011, but such caps typically increase over time.
The Kentucky Prepaid Tuition plan closed to new investors several years ago. It is reassessed annually, however, and may open to new investors at any time. This plan operates like those of other states. You agree to invest an amount on a recurring basis. That amount is calculated based on how many investment years you have before you will need to pay tuition. In return you are guaranteed a tuition rate at today's level. Prepaid tuition plans were designed based on tuition rising approximately 8 percent per year. Unfortunately, tuition has risen at significantly higher rates instead, so that like many states, Kentucky can no longer afford to fund the plan.
Although Kentucky's prepaid tuition plan is closed to new investors, you can still invest in plans of the other states. Kiplinger examined all state plans and recommends five state plans: the Illinois Bright Start College Savings Program because of its low fees; Alaska's T. Rowe Price College Investment Plan for its diverse mix of investments; the Michigan Education Savings Program for conservative investors; the College Savings Plan of Nebraska if you want to build your own portfolio; and the Virginia College America plan if you want to work with an investment advisor.