Rev. date: 01/01/2011
A Qualified Tuition Program (QTP) also called "529 plan", formerly
called a Qualified State Tuition Program (QSTP), is a program established and
maintained by a state, or agency or instrumentality of a state, to allow either
prepaying, or contributing to an account established for paying a student's
qualified higher education expenses at an eligible educational institution.
Eligible educational institutions can establish and maintain QTP(s) to allow
prepaying a student's qualified higher education expenses.
An eligible educational institution is generally any college,
university, vocational school, or other postsecondary educational institution
eligible to participate in a student aid program administered by the Department
of Education.
Contributions to a QTP on behalf of any beneficiary cannot be
more than the amount necessary to provide for the qualified higher education
expenses of the beneficiary. Contributions made to a QTP are not deductible on
your Federal tax return.
The benefits of establishing a QTP are; earnings accumulate tax
free while in the account, and no tax is due on a distribution that is used to
pay qualified higher education expenses. The beneficiary generally does not have
to include in income any of the earnings from a QTP unless the amount
distributed is greater than the beneficiary's qualified higher education
expenses.
For additional information, refer to Chapter 8 of
Publication 970,
Tax Benefits for Education.
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