Qualified tuition programs (QTPs) are also called “529 plans.”
States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution (defined below). Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. You cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution (defined below). Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. You cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
What is the tax benefit of a QTP. No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary’s adjusted qualified education expenses. See Are Distributions Taxable, beginning on this page, for more information.
Even if a QTP is used to finance a student’s education, the student or the student’s parents still may be eligible to claim either the Hope credit or the lifetime learning credit.
Even if a QTP is used to finance a student’s education, the student or the student’s parents still may be eligible to claim either the Hope credit or the lifetime learning credit.
What Is a Qualified Tuition Program
A qualified tuition program is a program set up to allow you to either prepay, or contribute to an account established for paying, a student’s qualified education expenses at an eligible educational institution. QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eligible educational institutions. The program must meet certain requirements. Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP.
Qualified education expenses. These expenses are the amounts paid for tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution (defined in the next column).
They also include the reasonable costs of room and board for a designated beneficiary who is at least a half-time student. The cost of room and board qualifies only to the extent that it is not more than the greater of the following two amounts.
The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.You will need to contact the eligible educational institution for qualified room and board costs.
The definition of qualified education expenses was expanded in 2002 to include expenses of a special needs beneficiary that are necessary for that person’s enrollment or attendance at an eligible educational institution.
See IRS web site for more information http://www.irs.gov/publications/p970/ch08.html
Recent Update Regarding Plans
Notice 2009-01 modifies Notice 2001-55, 2001-2 CB 299, and provides that a section 529 program (qualified tuition program) does not violate the investment restriction under section 529(b)(4) if it permits a participant to change investment strategy selected for a section 529 account twice during calendar year 2009. A change in investment strategy upon a change in the designated beneficiary of the account continues to be permitted as under Notice 2001-55. Notice 2009-01 will appear in IRB 2009-2, dated Jan. 12, 2009.
Notice 2009-01 modifies Notice 2001-55, 2001-2 CB 299, and provides that a section 529 program (qualified tuition program) does not violate the investment restriction under section 529(b)(4) if it permits a participant to change investment strategy selected for a section 529 account twice during calendar year 2009. A change in investment strategy upon a change in the designated beneficiary of the account continues to be permitted as under Notice 2001-55. Notice 2009-01 will appear in IRB 2009-2, dated Jan. 12, 2009.
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