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 QTP's.
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.