Pay College Expenses With Qualified Tuition Program

Added August 20, 2005 by Think Glink Staff

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Summary: A qualified tuition program is another name for a 529 plan, which allows you to save and invest money for college expenses. 529 plans or QTPs provide people with special tax benefits, such as accumulating earnings tax-free, if you meet education expense levels. QTPs may also be set up by educational institutions themselves.

Q. What is a QTP?

A. A qualified tuition program (QTP, or a 529 plan) allows family members to either prepay, or contribute to an account established for paying, a student's qualified higher education expenses at an education institution eligible to participate in U.S. Department of Education student aid programs. Both states and eligible institutions can establish and maintain such programs.

When a family uses a qualified state-sponsored tuition program to save for college, no tax is due in connection with the plan either as funds accumulate or at the time of withdrawal, as long as the distribution is less than the beneficiary's adjusted qualified higher education expenses. The same is true for institution-sponsored QTPs, except that only earnings distributed after January 1, 2004 are not taxable.

Families may use QTPs to save for tuition, required fees, books, supplies, equipment, and eligible room and board expenses. A Hope or Lifetime Learning Credit can be claimed in the same year the beneficiary receives a tax-free distribution from a QTP, as long as the same expenses are not used for both benefits.

Return to Frequently Asked Questions about Saving for College.

Aug. 20, 2005.

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