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Category: Questions about Income

What is a "qualified tuition plan (QTP)"?

A Qualified Tuition Program (QTP) also called a "529 plan", is established and maintained to allow either prepaying, or contributing to an account established for paying a student's qualified higher education expenses at an eligible educational institution. States and eligible educational institutions can establish and maintain QTP(s).

An eligible educational institution is generally any college, university, vocational school, or other post-secondary 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 more information on QTPs, please review Publication 970.