A qualified tuition plan, also known as a 529 plan, is a program maintained by the state which allows a contributor to either prepay a beneficiary's qualified higher education expenses for an eligible institution or to contribute to an account that pays for those expenses. States and eligible institutions can also establish and maintain a QTP.
Benefits of a QTP:
- The earnings accumulate as tax free when they are in the account.
- The beneficiary does not have to claim the distribution income as earnings if equal to the education expenses.
- The distributions are not taxable when they are used for qualified higher education expenses.
For more information on QTPs, please review Publication 970.