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A person can make nondeductible cash contributions to a qualified tuition program (QTP, or 529 plan) on behalf of a designated beneficiary. The earnings on the contributions build up tax-free and distributions from a QTP are excludable to the extent used to pay for qualified higher education expenses. A QTP is a tax-exempt program established and maintained by a state (including a state agency or instrumentality), or one or more eligible educational institutions (including private ones) under which a taxpayer may: (1) buy tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to a waiver or payment of qualified higher education expenses-i.e., a prepaid educational services account, or (2) make contributions to an account set up to meet the designated beneficiary's qualified higher education expenses-i.e., an educational savings account. This option is available only for state (or state agency or instrumentality) programs.
Qualified higher education expenses for QTP purposes are: (a) tuition, fees, books, supplies, equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution, and expenses for special needs services; and (b) room and board costs (subject to a limit) for students who are at least half-time.
Under the Recovery Act, expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology or equipment or Internet access or related services qualify as qualified education expenses under QTPs if such technology, equipment, or services are to be used by the QTP beneficiary or his family during any of the years the beneficiary is enrolled at an eligible educational institution. Expenses for computer software designed for sports, games or hobbies do not qualify unless the software is predominantly educational in nature.
Return to American Recovery and Reinvestment Tax Act of 2009 overview page.
Posted: February 15, 2009