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7. Qualified Tuition Program (QTP) Introduction QTPs are also called 529 plans. States may establish and maintain programs that allow you to either prepay or con- tribute to an account for paying a student's qualified edu- cation expenses at an eligible educational institution. Eligi- ble educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. You can't de- duct either payments or contributions to a QTP. For infor- mation on a specific QTP, you will need to contact the state agency or eligible educational institution that estab- lished and maintains it. What is the tax benefit of a QTP? No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses (AQEE). See Are Distributions Taxable, later, for more information. Even if a QTP is used to finance a student's edu- cation, the student or the student's parents may still be eligible to claim the American opportunity credit or the lifetime learning credit. See Coordination With American Opportunity and Lifetime Learning Credits, later. What Is a QTP? A QTP is a program set up to allow you to either prepay or contribute to an account established for paying a student's qualified education expenses at an eligible educational in- stitution. QTPs can be established and maintained by states (or agencies or instrumentalities of a state) and eli- gible educational institutions. The program must meet cer- tain requirements. Your state government or the eligible educational institution in which you are interested can tell you whether or not they participate in a QTP. Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. For purposes of QTPs, the expen- ses can be either qualified higher education expenses or qualified elementary and secondary education expenses. TIP Designated beneficiary. The designated beneficiary is generally the student (or future student) for whom the QTP is intended to provide benefits. The designated benefi- ciary can be changed after participation in the QTP be- gins. If a state or local government or certain tax-exempt organizations purchase an interest in a QTP as part of a scholarship program, the designated beneficiary is the person who receives the interest as a scholarship. Eligible Educational Institution For purposes of a QTP, an eligible educational institution can be either an eligible postsecondary school or an eligi- ble elementary or secondary school. Eligible postsecondary school. An eligible postsecon- dary school is generally any accredited public, nonprofit, or proprietary (privately owned profit-making) college, uni- versity, vocational school, or other postsecondary educa- tional institution. Also, the institution must be eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited postsecondary institutions meet this definition. The edu- cational institution should be able to tell you if it’s an eligi- ble educational institution. An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program ad- ministered by the U.S. Department of Education. Eligible elementary or secondary school. An eligible elementary or secondary school is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. As shown in the fol- lowing list, to be qualified, some of the expenses must be required by the school and some must be incurred by stu- dents who are enrolled at least half-time, defined later. 1. The following expenses must be required for enroll- ment or attendance of a designated beneficiary at an eligible postsecondary school. a. Tuition and fees. b. Books, supplies, and equipment. 2. Expenses for special needs services needed by a special needs beneficiary must be incurred in connec- tion with enrollment or attendance at an eligible post- secondary school. 3. Expenses for room and board must be incurred by students who are enrolled at least half-time (defined later). The expense for room and board qualifies only to the extent that it isn't more than the greater of the fol- lowing two amounts. Page 50 Chapter 7 Qualified Tuition Program (QTP)