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Rev. date: 01/01/2011

Qualified Tuition Programs (QTPs)

Tax Topic 313
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.