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.
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. See Are Distributions Taxable, later, for more information.
Even if a QTP is used to finance a student's education, the student or the student's parents still may be eligible to claim the American opportunity credit or the lifetime learning credit. See Coordination With American Opportunity and Lifetime Learning Credits, later.
For more information on qualified tuition programs, see federal Publication 970.