Qualified Tuition Program
There are two types of qualified tuition programs:
- College savings plans: A college savings plan is an investment account in which an individual chooses among various investment options, often consisting of portfolios that invest in mutual funds. The amount available for future tuition depends on the amount that the individual contributes and the performance of the investments that the individual has chosen.
- Prepaid tuition plans: A prepaid tuition plan is a contract between an individual and the plan’s sponsor that allows the individual to prepay future tuition expenses at current tuition rates. The sponsor can either be a state or the Tuition Plan Consortium, LLC, for private institutions (also known as the Private College 529 Plan).
In either case, the qualified tuition program is essentially a program that offers investors tax-advantaged accounts for the purpose of saving money to cover educational expenses. Qualified tuition programs are often called “529 plans” because they are recognized in the tax code at 26 U.S.C. § 529.