Qualified tuition programs (QTPs) are also called “529 plans.” Earnings in a qualified tuition program are tax-free while invested and tax exempt when withdrawn for qualified higher education expenses. The earnings portion of a non-qualified distributions is subject to tax as well as a 10 percent additional tax. Detail on Minnesota individual income tax treatment of qualified tuition programs is available from the Minnesota Department of Revenue.
Qualified Tuition Program
Qualified tuition programs are programs maintained by states and education institutions that allow you to either prepay a student’s tuition or contribute to an account established for paying a student’s qualified higher education expenses. The state of Minnesota has a Qualified Tuition Program, the Minnesota College Savings Plan. To learn about the Minnesota College Savings Plan and download or request enrollment materials, visit www.mnsaves.org.
Beneficiary
The beneficiary is the student (or future student) for whom the qualified tuition program is intended to provide benefits.
Transfer of Amounts or Change of Beneficiaries
Federal law permits amounts in a qualified tuition program to be transferred to another qualified tuition program and changes in beneficiaries so long as the new beneficiary is a family member.
Rebalance
Federal law permits a 529 plan account owner to rebalance, or transfer, assets among investment options in an account once per calendar year.
Limitations
Contributions to a qualified tuition program on behalf of any beneficiary cannot be more than the amount necessary to provide for the qualified higher education expenses of the beneficiary. States vary in the amount you may contribute. For example, the maximum account balance for the Minnesota College Savings Plan is $235,000.
Qualified Education Expenses
Qualified higher education expenses are tuition, fees, books, supplies and equipment required for enrollment or attendance at an eligible education institution. Qualified expenses include room and board for a beneficiary enrolled at least half time.
Eligible Educational Institutions
Eligible educational institutions are any college, university, vocational school or other postsecondary educational institution eligible to participate in student aid programs administered by the United States Department of Education.
Coordination with Other Tax Benefits for Higher Education
The student or student’s parents who use a qualified tuition program to finance a student’s higher education may be eligible to claim either the Hope or Lifetime Learning Tax Credit. You can make contributions to Coverdell Education Savings Accounts (ESA) and QTPs in the same year for the same beneficiary.
For additional information on Qualified Tuition Programs, see Internal Revenue Service Publication 970 and the Minnesota College Savings Plan.