Hawaii has adopted the federal provisions relating to the qualified tuition programs (also known as a 529 program) except for the 10% tax on distributions not used for educational expenses. A qualified tuition program (QTP) is a program set up to allow you to either prepay, or contribute to an account established for paying, a student's qualified higher education expenses at an eligible educational institution.
A program can be established and maintained by a state, an agency or instrumentality of a state, or an eligible educational institution.
You cannot deduct either payments or contributions to a QTP. The part of a distribution representing the amount paid or contributed to a QTP is not included in income. This is a return of the investment in the program. The beneficiary generally does not include in income any earnings distributed from a QTP established and maintained by a state, an agency or instrumentality of a state, or an eligible educational institution if the total distribution is less than or equal to adjusted qualified higher education expenses. However, the beneficiary must include in income any earnings distributed before January 1, 2006, from a QTP established and maintained by an eligible educational institution. For more information, see federal Publication 970, Tax Benefits for Education.