Qualified Tuition Programs

Today, almost every state has some type of qualified tuition program in place. These plans are sometimes known as Section 529 Plans, after the Internal Revenue Code section authorizing them. Generally, two types of plans exist: prepaid tuition plans and savings plans. Prepaid tuition plans, which are more common, are plans in which contributions are used to guarantee payment of state tuition (or some comparable amount). Since 2002, private colleges and other institutions have been able to offer prepaid tuition plans, in addition to the state plans.

The savings plan is set up as a trust. The savings plan may or may not provide for guaranteed returns.

To determine whether a state has a tuition savings plan or another state has a plan for which one is eligible to make contributions, interested individuals can go to www.collegesavings.org for information.

While contributions to the programs are not deductible for federal income tax purposes, states, however, may provide a deduction from state income tax for contributions.

"Qualified higher education costs" include tuition, fees, books, supplies, and for students who attend at least half-time, room and board up to the school's posted rate, or $2,500 per year for students living off-campus but not at home.