26 USC 529 - Qualified tuition programs

U.S Code last checked for updates: Nov 22, 2024

§ 529.

Qualified tuition programs

(a)

General rule

(b)

Qualified tuition program

For purposes of this section—

(1)

In general

The term “qualified tuition program” means a program established and maintained by a State or agency or instrumentality thereof or by 1 or more eligible educational institutions—

(A)

under which a person—

(i)

may purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher education expenses of the beneficiary, or

(ii)

in the case of a program established and maintained by a State or agency or instrumentality thereof, may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account, and

(B)

which meets the other requirements of this subsection.

Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sentence, the term “qualified trust” means a trust which is created or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met.

(2)

Cash contributions

(3)

Separate accounting

(4)

Limited investment direction

(5)

No pledging of interest as security

(6)

Prohibition on excess contributions

(c)

Tax treatment of designated beneficiaries and contributors

(1)

In general

Except as otherwise provided in this subsection, no amount shall be includible in gross income of—

(A)

a designated beneficiary under a qualified tuition program, or

(B)

a contributor to such program on behalf of a designated beneficiary,

with respect to any distribution or earnings under such program.

(2)

Gift tax treatment of contributions

For purposes of chapters 12 and 13—

(A)

In general

Any contribution to a qualified tuition program on behalf of any designated beneficiary—

(i)

shall be treated as a completed gift to such beneficiary which is not a future interest in property, and

(ii)

shall not be treated as a qualified transfer under section 2503(e).

(B)

Treatment of excess contributions

(3)

Distributions

(A)

In general

(B)

Distributions for qualified higher education expenses

For purposes of this paragraph—

(i)

In-kind distributions

(ii)

Cash distributions

In the case of distributions not described in clause (i), if—

(I)

such distributions do not exceed the qualified higher education expenses (reduced by expenses described in clause (i)), no amount shall be includible in gross income, and

(II)

in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distributions.

(iii)

Exception for institutional programs

(iv)

Treatment as distributions

(v)

Coordination with American Opportunity and Lifetime Learning credits

The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced—

(I)

as provided in section 25A(g)(2), and

(II)

by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A.

(vi)

Coordination with Coverdell education savings accounts

If, with respect to an individual for any taxable year—

(I)

the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed

(II)

the total amount of qualified higher education expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (v)) for such year,

the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).

(C)

Change in beneficiaries or programs

(i)

Rollovers

Subparagraph (A) shall not apply to that portion of any distribution which, within 60 days of such distribution, is transferred—

(I)

to another qualified tuition program for the benefit of the designated beneficiary,

(II)

to the credit of another designated beneficiary under a qualified tuition program who is a member of the family of the designated beneficiary with respect to which the distribution was made, or

(III)

before January 1, 2026, to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary.

Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B)(i).

(ii)

Change in designated beneficiaries

(iii)

Limitation on certain rollovers

(D)

Special rule for contributions of refunded amounts

(E)

Special rollover to roth iras from long-term qualified tuition programs

(i)

In general

In the case of a distribution from a qualified tuition program of a designated beneficiary which has been maintained for the 15-year period ending on the date of such distribution, subparagraph (A) shall not apply to so much the portion of such distribution which—

(I)

does not exceed the aggregate amount contributed to the program (and earnings attributable thereto) before the 5-year period ending on the date of the distribution, and

(II)

is paid in a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of such designated beneficiary.

(ii)

Limitations

(I)

Annual limitation

(II)

Aggregate limitation

(4)

Estate tax treatment

(A)

In general

(B)

Amounts includible in estate of designated beneficiary in certain cases

(C)

Amounts includible in estate of donor making excess contributions

(5)

Other gift tax rules

For purposes of chapters 12 and 13—

(A)

Treatment of distributions

(B)

Treatment of designation of new beneficiary

The taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) unless the new beneficiary is—

(i)

assigned to the same generation as (or a higher generation than) the old beneficiary (determined in accordance with section 2651), and

(ii)

a member of the family of the old beneficiary.

(6)

Additional tax

(7)

Treatment of elementary and secondary tuition

(8)

Treatment of certain expenses associated with registered apprenticeship programs

(9)

Treatment of qualified education loan repayments

(A)

In general

(B)

Limitation

(C)

Special rules for siblings of the designated beneficiary

(i)

Separate accounting

(ii)

Sibling defined

(d)

Reports

(1)

In general

(2)

Rollover distributions

(e)

Other definitions and special rules

For purposes of this section—

(1)

Designated beneficiary

The term “designated beneficiary” means—

(A)

the individual designated at the commencement of participation in the qualified tuition program as the beneficiary of amounts paid (or to be paid) to the program,

(B)

in the case of a change in beneficiaries described in subsection (c)(3)(C), the individual who is the new beneficiary, and

(C)

in the case of an interest in a qualified tuition program purchased by a State or local government (or agency or instrumentality thereof) or an organization described in section 501(c)(3) and exempt from taxation under section 501(a) as part of a scholarship program operated by such government or organization, the individual receiving such interest as a scholarship.

(2)

Member of family

The term “member of the family” means, with respect to any designated beneficiary—

(A)

the spouse of such beneficiary;

(B)

an individual who bears a relationship to such beneficiary which is described in subparagraphs (A) through (G) of section 152(d)(2);

(C)

the spouse of any individual described in subparagraph (B); and

(D)

any first cousin of such beneficiary.

(3)

Qualified higher education expenses

(A)

In general

The term “qualified higher education expenses” means—

(i)

tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution,

(ii)

expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance, and

(iii)

expenses for the purchase of computer or peripheral equipment (as defined in section 168(i)(2)(B)), computer software (as defined in section 197(e)(3)(B)), or Internet access and related services, if such equipment, software, or services are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution.

Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year shall, in the aggregate, include not more than $10,000 in expenses described in subsection (c)(7) incurred during the taxable year.

(B)

Room and board included for students who are at least half-time

(i)

In general

(ii)

Limitation

The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed—

(I)

the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or

(II)

if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.

(4)

Application of section 514

(5)

Eligible educational institution

The term “eligible educational institution” means an institution—

(A)

which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this paragraph, and

(B)

which is eligible to participate in a program under title IV of such Act.

(f)

Regulations

(Added Pub. L. 104–188, title I, § 1806(a), Aug. 20, 1996, 110 Stat. 1895; amended Pub. L. 105–34, title II, § 211(a), (b), (d), (e)(2)(A), title XVI, § 1601(h)(1)(A), (B), Aug. 5, 1997, 111 Stat. 810, 812, 1092; Pub. L. 105–206, title VI, § 6004(c)(2), (3), July 22, 1998, 112 Stat. 793; Pub. L. 106–554, § 1(a)(7) [title III, § 319(5)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 107–16, title IV, § 402(a)(1)–(3), (4)(A), (C), (D), (b)(1), (c)–(g), June 7, 2001, 115 Stat. 60–63; Pub. L. 107–22, § 1(b)(3)(C), July 26, 2001, 115 Stat. 197; Pub. L. 107–147, title IV, § 417(11), Mar. 9, 2002, 116 Stat. 56; Pub. L. 108–311, title II, § 207(21), title IV, § 406(a), Oct. 4, 2004, 118 Stat. 1178, 1189; Pub. L. 109–135, title IV, § 412(ee)(3), Dec. 21, 2005, 119 Stat. 2639; Pub. L. 109–280, title XIII, § 1304(b), Aug. 17, 2006, 120 Stat. 1110; Pub. L. 111–5, div. B, title I, § 1005(a), Feb. 17, 2009, 123 Stat. 316; Pub. L. 113–295, div. B, title I, § 105(a), Dec. 19, 2014, 128 Stat. 4064; Pub. L. 114–113, div. Q, title III, § 302(a)(1), (b)(1), (c)(1), Dec. 18, 2015, 129 Stat. 3086; Pub. L. 115–97, title I, §§ 11025(a), 11032(a), Dec. 22, 2017, 131 Stat. 2076, 2081; Pub. L. 115–141, div. U, title I, § 101(l)(15), title IV, § 401(a)(127), (128), Mar. 23, 2018, 132 Stat. 1165, 1190; Pub. L. 116–94, div. O, title III, § 302(a), (b)(1), Dec. 20, 2019, 133 Stat. 3175; Pub. L. 117–328, div. T, title I, § 126(a), (c), Dec. 29, 2022, 136 Stat. 5316, 5317.)

cite as: 26 USC 529

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