529 college savings plan

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529 College Savings Plan

An account into which persons deposit funds to save for university-related expenses. The funds in a 529 college savings account are tax-deferred and, if used directly to pay for college, tax exempt at the federal level. They are sometimes exempt at the state level as well. The plan exists in an attempt to make post-secondary education more affordable. See also: IRA, 401(k).

529 college savings plan.

Each 529 college savings plan is sponsored by a particular state or group of states, and while each plan is a little different, they share many basic elements.

When you invest in a 529 savings plan, any earnings in your account accumulate tax free, and you can make federally tax-free withdrawals to pay for qualified educational expenses, such as college tuition, room and board, and books at any accredited college, university, vocational, or technical program in the United States and a number of institutions overseas.

Some states also exempt earnings from state income tax, and may offer additional advantages to state residents, such as tax deductions for contributions.

You must name a beneficiary when you open a 529 savings plan account, but you may change beneficiaries if you wish, as long as the new beneficiary is a member of the same extended family as the original beneficiary.

In most cases, you may choose any state's plan, even if neither you nor your beneficiary live in that state. There are no income limits restricting who can contribute to a plan, and the lifetime contributions are more than $300,000 in some states.

You can make a one-time contribution of $60,000 without incurring potential gift tax, provided you don't make another contribution for five years. Or, you may prefer to add smaller amounts, up to the annual gift exclusion.

References in periodicals archive ?
These plans, officially qualified tuition programs, are named for the IRC section that provides their advantages.
These plans are often collectively referred to as "529 plans." In the case of a state-sponsored qualified tuition program, a person may make contributions to an account established to fund the qualified higher education expenses of a designated beneficiary.
Before creation of the Educational Savings Account (ESA) and Qualified Tuition Programs (QTP, also referred to as 529 plans), parents who wished to give money or property to their minor children could do so in four basic ways:
A qualified tuition program is a program established and maintained by a state (or agency or instrumentality thereof) or by one or more "eligible educational institutions" (see below) that meet certain requirements (see below) and under which a person may buy tuition credits or certificates on behalf of a designated beneficiary (see below) that entitle the beneficiary to a waiver or payment of qualified higher education expenses (see below) of the beneficiary.
If a designated beneficiary receives distributions from both an ESA and a qualified tuition program and the aggregate distributions exceed the qualified education expenses of the designated beneficiary, then the expenses must be allocated among such distributions for purposes of determining the amount excludable under each.
Code Section 529 authorizes two types of qualified tuition programs (QTPs): prepaid tuition plans and education investment plans.
529: Qualified tuition programs. Each program is designed to encourage saving for education by excluding the earnings on those savings from tax.
Qualified tuition programs (QTPs), also known as 529 plans, offer substantial tax benefits.
His father, Paul, disclosed to the Social Security Administration at the time of application that Mark had $30,000 in a UTMA ("Uniform Transfers to Minors Act") account, and $20,000 in a Qualified Tuition Program (QTP) or 529 Plan.
The ARRA also added computers to the qualified expenses eligible for payment by distributions from a qualified tuition program under IRC [section] 529.
Qualified Tuition Program. While the contributions to 529 plans are nondeductible, distributions from them are excludable from gross income if they are for qualified education expenses, defined as: 1) tuition, fees, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution, and expenses for special needs services; and 2) room and board costs (subject to a limit) for students who are enrolled at least half-time.
* No tax is due on a distribution from a qualified tuition program, also called a "529 plan," unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses, which are the beneficiary's qualified education expenses less any tax-free educational assistance.

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