Qualified Tuition Programs (QTPs)

A Qualified Tuition Program (QTP) is also called a “section 529 plan.” If the program is established and maintained by a state, or agency or instrumentality of a state, the program may allow either prepaying or contributing to an account for paying a beneficiary’s qualified higher education expenses at an eligible educational institution. Eligible educational institutions can also establish and maintain QTPs but only to allow prepaying a beneficiary’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. Contact the program’s trustee or administrator to determine the program’s contribution limit. 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.

Source: Internal Revenue Service
Last reviewed: September 21, 2013