26 U.S.C. § 529: Qualified tuition programs

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). 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 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 which meets the other requirements of this subsection. A program shall not be treated as a qualified tuition program unless it provides that purchases or contributions may only be made in cash. A program shall not be treated as a qualified tuition program unless it provides separate accounting for each designated beneficiary. 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, directly or indirectly, direct the investment of any contributions to the program (or any earnings thereon) no more than 2 times in any calendar year. 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. 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. a designated beneficiary under a qualified tuition program, or a contributor to such program on behalf of a designated beneficiary, shall be treated as a completed gift to such beneficiary which is not a future interest in property, and shall not be treated as a qualified transfer under section 2503(e). 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. 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. 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. 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 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. 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. 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. as provided in section 25A(g)(2), and 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. the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed 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, to another qualified tuition program for the benefit of the designated beneficiary, 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 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. 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. 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. In the case of a beneficiary who receives a refund of any qualified higher education expenses from an eligible educational institution, subparagraph (A) shall not apply to that portion of any distribution for the taxable year which is recontributed to a qualified tuition program of which such individual is a beneficiary, but only to the extent such recontribution is made not later than 60 days after the date of such refund and does not exceed the refunded amount. 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 is paid in a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of such designated beneficiary. Clause (i) shall only apply to so much of any distribution as does not exceed the amount applicable to the designated beneficiary under section 408A(c)(2) for the taxable year (reduced by the amount of aggregate contributions made during the taxable year to all individual retirement plans maintained for the benefit of the designated beneficiary). This subparagraph shall not apply to any distribution described in clause (i) to the extent that the aggregate amount of such distributions with respect to the designated beneficiary for such taxable year and all prior taxable years exceeds $35,000. 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. Subparagraph (A) shall not apply to amounts distributed on account of the death of a beneficiary. 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. Except as provided in subparagraph (B), in no event shall a distribution from a qualified tuition program be treated as a taxable gift. assigned to the same generation as (or a higher generation than) the old beneficiary (determined in accordance with section 2651), and a member of the family of the old beneficiary. 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 a 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. Tuition. Curriculum and curricular materials. Books or other instructional materials. Online educational materials. is licensed as a teacher in any State, has taught at an eligible educational institution, or is a subject matter expert in the relevant subject. Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission. Fees for dual enrollment in an institution of higher education. Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies. Any reference in this subsection to the term “qualified higher education expense” shall include a reference to expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act ( 29 U.S.C. 50 ). Any reference in this subsection to the term “qualified higher education expense” shall include a reference to amounts paid as principal or interest on any qualified education loan (as defined in section 221(d)) of the designated beneficiary or a sibling of the designated beneficiary. The amount of distributions treated as a qualified higher education expense under this paragraph with respect to the loans of any individual shall not exceed $10,000 (reduced by the amount of distributions so treated for all prior taxable years). For purposes of subparagraph (B) and subsection (d), amounts treated as a qualified higher education expense with respect to the loans of a sibling of the designated beneficiary shall be taken into account with respect to such sibling and not with respect to such designated beneficiary. For purposes of this paragraph, the term “sibling” means an individual who bears a relationship to the designated beneficiary which is described in section 152(d)(2)(B). 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 paragraph 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. In the case of any distribution described in subsection (c)(3)(E), the officer or employee having control of the qualified tuition program (or their designee) shall provide a report to the trustee of the Roth IRA to which the distribution is made. Such report shall be filed at such time and in such manner as the Secretary may require and shall include information with respect to the contributions, distributions, and earnings of the qualified tuition program as of the date of the distribution described in subsection (c)(3)(A), together with such other matters as the Secretary may require. 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, in the case of a change in beneficiaries described in subsection (c)(3)(C), the individual who is the new beneficiary, and 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. the spouse of such beneficiary; an individual who bears a relationship to such beneficiary which is described in subparagraphs (A) through (G) of section 152(d)(2); the spouse of any individual described in subparagraph (B); and any first cousin of such beneficiary. tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution, expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance, and 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. 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. 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. 1087 ll ), 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 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. The term “qualified higher education expenses” includes qualified postsecondary credentialing expenses (as defined in subsection (f)). An interest in a qualified tuition program shall not be treated as debt for purposes of section 514. 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 which is eligible to participate in a program under title IV of such Act. tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary in a recognized postsecondary credential program, or any other expense incurred in connection with enrollment in or attendance at a recognized postsecondary credential program if such expense would, if incurred in connection with enrollment or attendance at an eligible educational institution, be covered under subsection (e)(3)(A), fees for testing if such testing is required to obtain or maintain a recognized postsecondary credential, and fees for continuing education if such education is required to maintain a recognized postsecondary credential. such program is included on a State list prepared under section 122(d) of the Workforce Innovation and Opportunity Act ( 29 U.S.C. 3152(d) ), such program is listed in the public directory of the Web Enabled Approval Management System (WEAMS) of the Veterans Benefits Administration, or successor directory such program, an examination (developed or administered by an organization widely recognized as providing reputable credentials in the occupation) is required to obtain or maintain such credential and such organization recognizes such program as providing training or education which prepares individuals to take such examination, or such program is identified by the Secretary, after consultation with the Secretary of Labor, as being a reputable program for obtaining a recognized postsecondary credential for purposes of this subparagraph. any postsecondary employment credential issued by a program that is accredited by the Institute for Credentialing Excellence, the National Commission on Certifying Agencies, or the American National Standards Institute, any postsecondary employment credential that is included in the Credentialing Opportunities On-Line (COOL) directory of credentialing programs (or successor directory) maintained by the Department of Defense or by any branch of the Armed Forces, or any postsecondary employment credential identified for purposes of this clause by the Secretary, after consultation with the Secretary of Labor, as being industry recognized, any certificate of completion of an apprenticeship that is registered and certified with the Secretary of Labor under the Act of August 16, 1937 (commonly known as the “National Apprenticeship Act”; 50 Stat. 664 , chapter 663; 29 U.S.C. 50 et seq.), any occupational or professional license issued or recognized by a State or the Federal Government (and any certification that satisfies a condition for obtaining such a license), and any recognized postsecondary credential as defined in section 3(52) of the Workforce Innovation and Opportunity Act ( 29 U.S.C. 3102(52) ), provided through a program described in paragraph (2)(A). Notwithstanding any other provision of this section, the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section and to prevent abuse of such purposes, including regulations under chapters 11, 12, and 13 of this title. The amendment made by this subsection [amending this section] shall apply with respect to refunds of qualified higher education expenses after December 31, 2014 . In the case of a refund of qualified higher education expenses received after December 31, 2014 , and before the date of the enactment of this Act [ Dec. 18, 2015 ], section 529(c)(3)(D) of the Internal Revenue Code of 1986 (as added by this subsection) shall be applied by substituting ‘not later than 60 days after the date of the enactment of this subparagraph [ Dec. 18, 2015 ]’ for ‘not later than 60 days after the date of such refund’.” Except as otherwise provided in this subsection, the amendments made by this section [amending this section and sections 135 and 6693 of this title] shall take effect on January 1, 1998 . The amendment made by subsection (a) shall take effect as if included in the amendments made by section 1806 of the Small Business Job Protection Act of 1996 [ Pub. L. 104–188 ]. The amendment made by subsection (b)(2) [amending this section] shall apply to distributions after December 31, 1997 , with respect to expenses paid after such date (in taxable years ending after such date), for education furnished in academic periods beginning after such date. The amendment made by subsection (c) [amending section 135 of this title ] shall apply to taxable years beginning after December 31, 1997 . Paragraphs (2) and (5) of section 529(c) of the Internal Revenue Code of 1986, as amended by this section, shall apply to transfers (including designations of new beneficiaries) made after the date of the enactment of this Act [ Aug. 5, 1997 ]. Paragraph (4) of such section 529(c) shall apply to estates of decedents dying after June 8, 1997 . In the case of any contract issued prior to August 20, 1996 , section 529(c)(3)(C) of the Internal Revenue Code of 1986 shall be applied for taxable years ending after August 20, 1996 , without regard to the requirement that a distribution be transferred to a member of the family or the requirement that a change in beneficiaries may be made only to a member of the family.” The amendments made by this section [enacting this section and amending section 135 of this title ] shall apply to taxable years ending after the date of the enactment of this Act [ Aug. 20, 1996 ]. a State or agency or instrumentality thereof maintains, on the date of the enactment of this Act, a program under which persons may purchase tuition credits or certificates on behalf of, or make contributions for education expenses of, a designated beneficiary, and the date which is 1 year after such date of enactment, or the first day of the first calendar quarter after the close of the first regular session of the State legislature that begins after such date of enactment,