Qualified Tuition Programs.
Qualified tuition programs (QTPs) are also called 529 plans.
States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses (defined later). Eligible 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 cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
Qualified Higher Education Expenses. These are the tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. They also include the reasonable costs of room and board for a beneficiary who is at least a half-time student. The calculation of the amount that is considered reasonable for room and board expenses has been changed. They also include expenses of a special needs beneficiary that are necessary for that persons enrollment or attendance at an eligible institution.
Distributions from State-maintained QTPs. A distribution from a QTP established and maintained by a state (or agency or instrumentality of the state) can be excluded from income if the amount distributed is used for higher education.
QTPs Maintained by Educational Institutions. You can make contributions to a QTP established and maintained by one or more eligible educational institutions.
Rollovers of QTPs, Change of Beneficiaries. Amounts in a QTP can be rolled over tax free to the QTP of another beneficiary, subject to certain limitations. Amounts in a QTP of one beneficiary can be rolled over tax free to another QTP for the same beneficiary, subject to certain limitations. The beneficiary of a QTP can be changed, subject to certain limitations.
For more information on qualified tuition programs, see federal Publication 970 at www.irs.gov