26 U.S.C. § 529 : US Code - Section 529: Qualified tuition programs

Search 26 U.S.C. § 529 : US Code - Section 529: Qualified tuition programs

(a) General rule
A qualified tuition program shall be exempt from taxation under
this subtitle. Notwithstanding the preceding sentence, such program
shall be subject to the taxes imposed by section 511 (relating to
imposition of tax on unrelated business income of charitable
organizations).
(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
A program shall not be treated as a qualified tuition program
unless it provides that purchases or contributions may only be
made in cash.
(3) Separate accounting
A program shall not be treated as a qualified tuition program
unless it provides separate accounting for each designated
beneficiary.
(4) No investment direction
A program shall not be treated as a qualified tuition program
unless it provides that any contributor to, or designated
beneficiary under, such program may not directly or indirectly
direct the investment of any contributions to the program (or any
earnings thereon).
(5) No pledging of interest as security
A program shall not be treated as a qualified tuition program
if it allows any interest in the program or any portion thereof
to be used as security for a loan.
(6) Prohibition on excess contributions
A program shall not be treated as a qualified tuition program
unless it provides adequate safeguards to prevent contributions
on behalf of a designated beneficiary in excess of those
necessary to provide for the qualified higher education expenses
of the beneficiary.
(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
If the aggregate amount of contributions described in
subparagraph (A) during the calendar year by a donor exceeds
the limitation for such year under section 2503(b), such
aggregate amount shall, at the election of the donor, be taken
into account for purposes of such section ratably over the 5-
year period beginning with such calendar year.
(3) Distributions
(A) In general
Any distribution under a qualified tuition program shall be
includible in the gross income of the distributee in the manner
as provided under section 72 to the extent not excluded from
gross income under any other provision of this chapter.
(B) Distributions for qualified higher education expenses
For purposes of this paragraph -
(i) In-kind distributions
No amount shall be includible in gross income under
subparagraph (A) by reason of a distribution which consists
of providing a benefit to the distributee which, if paid for
by the distributee, would constitute payment of a qualified
higher education expense.
(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
In the case of any taxable year beginning before January 1,
2004, clauses (i) and (ii) shall not apply with respect to
any distribution during such taxable year under a qualified
tuition program established and maintained by 1 or more
eligible educational institutions.
(iv) Treatment as distributions
Any benefit furnished to a designated beneficiary under a
qualified tuition program shall be treated as a distribution
to the beneficiary for purposes of this paragraph.
(v) Coordination with Hope 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, or
(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.
(ii) Change in designated beneficiaries
Any change in the designated beneficiary of an interest in
a qualified tuition program shall not be treated as a
distribution for purposes of subparagraph (A) if the new
beneficiary is a member of the family of the old beneficiary.
(iii) Limitation on certain rollovers
Clause (i)(I) shall not apply to any transfer if such
transfer occurs within 12 months from the date of a previous
transfer to any qualified tuition program for the benefit of
the designated beneficiary.
(D) Operating rules
For purposes of applying section 72 -
(i) to the extent provided by the Secretary, all qualified
tuition programs of which an individual is a designated
beneficiary shall be treated as one program,
(ii) except to the extent provided by the Secretary, all
distributions during a taxable year shall be treated as one
distribution, and
(iii) except to the extent provided by the Secretary, the
value of the contract, income on the contract, and investment
in the contract shall be computed as of the close of the
calendar year in which the taxable year begins.
(4) Estate tax treatment
(A) In general
No amount shall be includible in the gross estate of any
individual for purposes of chapter 11 by reason of an interest
in a qualified tuition program.
(B) Amounts includible in estate of designated beneficiary in
certain cases
Subparagraph (A) shall not apply to amounts distributed on
account of the death of a beneficiary.
(C) Amounts includible in estate of donor making excess
contributions
In the case of a donor who makes the election described in
paragraph (2)(B) and who dies before the close of the 5-year
period referred to in such paragraph, notwithstanding
subparagraph (A), the gross estate of the donor shall include
the portion of such contributions properly allocable to periods
after the date of death of the donor.
(5) Other gift tax rules
For purposes of chapters 12 and 13 -
(A) Treatment of distributions
Except as provided in subparagraph (B), in no event shall a
distribution from a qualified tuition program be treated as a
taxable gift.
(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
The tax imposed by section 530(d)(4) shall apply to any payment
or distribution from a qualified tuition program in the same
manner as such tax applies to a payment or distribution from an
(!1) Coverdell education savings account. This paragraph shall
not apply to any payment or distribution in any taxable year
beginning before January 1, 2004, which is includible in gross
income but used for qualified higher education expenses of the
designated beneficiary.
(d) Reports
Each officer or employee having control of the qualified tuition
program or their designee shall make such reports regarding such
program to the Secretary and to designated beneficiaries with
respect to contributions, distributions, and such other matters as
the Secretary may require. The reports required by this subsection
shall be filed at such time and in such manner and furnished to
such individuals at such time and in such manner as may be required
by the Secretary.
(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; and
(ii) expenses for special needs services in the case of a
special needs beneficiary which are incurred in connection
with such enrollment or attendance.
(B) Room and board included for students who are at least half-
time
(i) In general
In the case of an individual who is an eligible student (as
defined in section 25A(b)(3)) for any academic period, such
term shall also include reasonable costs for such period (as
determined under the qualified tuition program) incurred by
the designated beneficiary for room and board while attending
such institution. For purposes of subsection (b)(6), a
designated beneficiary shall be treated as meeting the
requirements of this clause.
(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
An interest in a qualified tuition program shall not be treated
as debt for purposes 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.