530 QTP's [Qualified Tuition Programs]

  • A 530 QTP is not a tax reduction device.

  • At best, it is a tax deferment device.

  • The best source of public information on 530 plans is Wikipedia.

  • The second best source is IRS Publication 970.

  • There is no deduction for contributions to a 530 QTP.

  • The advantage is that you can put money into a 530 QTP to pay for future college expenses, let the interest grow, and when you later withdraw the money to pay for qualified college expenses, the additional interest is not taxable.

  • There is no limit to the amount you can contribute to a 530 QTP, but if you take any money out that is not used for qualified college costs, that portion is taxable.

  • Although the programs are called Qualified Tuition Programs, the following expenses qualify:

    1. tuition
    2. fees
    3. books
    4. supplies
    5. computers and computer software (but not sports, hobby, and non-educational software)
    6. cost of on-campus room and board
    7. cost of off-campus room and board up to an amount established by the state agency running the 529 QTP

  • Differences from the Section 529 Coverdell.

    1. The 530 QTP is a "big brother" to the 520 Coverdell.
    2. A Coverdell has an annual limit of $2,000 (in 2006) that one can contribution in one calendar year.
    3. The 530 QTP has no limit, but it cannot be used to shelter money not used for education.
    4. Coverdell is a "go it alone" plan where the taxpayer goes to a bank and sets up a savings plan, then designates it as a "Coverdell" so that the interest will not have to be reported as taxable income.
    5. A 530 QTP is set up by a state government and the taxpayer participates in it.
    6. Some states make matching fund contributions, not a "go it alone" program.
    7. Sometimes along with the Section 530 QTP there is a scholarship offer.