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Rev. date: 11/17/2015

Qualified Tuition Programs (QTPs)

Tax Topic 313
A Qualified Tuition Program (QTP), also referred to as a section 529 plan, is a program established and maintained by a state, or an agency or instrumentality of a state, that allows a contributor either to prepay a beneficiary's qualified higher education expenses at an eligible educational institution or to contribute to an account for paying those expenses. 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.
The benefits of establishing a QTP are that earnings accumulate tax free while in the account. Generally, the beneficiary does not have to include in income any of the earnings from a QTP. No tax is due on a distribution as long as it is used to pay qualified higher education expenses. If the amount distributed is greater than the beneficiary's qualified higher education expenses, a portion of the earnings is taxable.
For additional information, refer to Chapter 8 of Publication 970, Tax Benefits for Education.