QUALIFIED TUITION PROGRAMS (QTP) — often called a 529 plan — let a taxpayer prepay or contribute to an account set up to pay a student’s qualified education expenses at an eligible school. A state, a state agency, an instrumentality of a state, or an eligible educational institution can establish and maintain a QTP. Families new to the United States 🇺🇸 often ask how these rules work in plain terms. The core idea is simple: money grows tax-free, and when used for approved costs, withdrawals can be tax-free too.
Who qualifies and how beneficiaries work
- The designated beneficiary is generally the student (or future student). The taxpayer can change the designated beneficiary.
- There are no income restrictions on individual contributors.
- Contributions on behalf of any beneficiary cannot exceed the amount necessary to provide for that beneficiary’s qualified education expenses.
- The part of any distribution equal to the amount paid or contributed (your original investment) is not income — it’s a return of contribution.

Comparison with an Education Savings Account (ESA):
– Both QTPs and ESAs share: no tax deduction for contributions, tax-free growth, and tax-free withdrawals when used for qualified education expenses.
– Key differences of a QTP vs an ESA:
– The beneficiary of a QTP can be any age (and can be changed).
– QTPs have no age-based distribution rules.
– QTP contributions can be much higher than an ESA.
– QTPs have no income restrictions for contributors.
Qualified distributions — what counts (and what doesn’t)
- Earnings grow tax-free in a QTP.
- The beneficiary generally does not include earnings distributed from a QTP in income if the total distribution is less than or equal to adjusted qualified education expenses.
- If distributions exceed those expenses, the earnings portion can be taxable.
Key limits and recent expansions:
– Under the Tax Cuts and Jobs Act (TCJA), a QTP may distribute up to $10,000 per taxable year, per student for tuition at a public, private, or religious elementary or secondary school (K–12).
– This is a per-student limit, not per account.
– Any amount over $10,000 for K–12 tuition is treated as taxable.
– The SECURE Act expanded “qualified higher education expenses” to include:
– Certain expenses for registered apprenticeships.
– Up to $10,000 of principal or interest on a qualified student loan for the beneficiary, plus an additional $10,000 for each of the beneficiary’s siblings.
– This $10,000 cap for student loan repayments is a lifetime limit per beneficiary and is reduced by prior years’ amounts.
Tip: Amounts treated as loan repayments for a sibling are taken into account for that sibling — not for the original beneficiary.
Remember: You can withdraw any amount from a 529 plan, but only qualified distributions are tax-free.
Who receives the income and how it’s reported
- Income from QTP distributions is reported on Form 1099-Q.
- The “recipient” is:
- The beneficiary, if the plan pays the beneficiary directly or pays an eligible school for the beneficiary’s benefit. In that case, any taxable amount belongs to the beneficiary.
- Otherwise, the account owner is the recipient.
Useful IRS links:
– Form 1099-Q: https://www.irs.gov/forms-pubs/about-form-1099-q
– Topic No. 313 (QTP overview): https://www.irs.gov/taxtopics/tc313
According to analysis by VisaVerge.com, families often focus on who gets the Form 1099-Q because it affects whose tax return must report any taxable portion of a withdrawal.
ABLE (529A) accounts for disabled individuals
A 529 ABLE account is a tax-favored savings program for disabled individuals. A state or its agency runs it, similar to a 529 plan.
Eligibility rules:
– The designated beneficiary must be an eligible individual — someone who either:
– Filed a disability certification for the taxable year, or
– Is entitled to Social Security Disability Insurance (SSDI) or SSI due to blindness or disability that occurred before age 26.
– A disability certification must:
– Be made by the individual (or a parent/guardian).
– State the person has a medically determinable physical or mental impairment with marked and severe functional limitations, expected to result in death or last at least 12 months, or state that the person is blind.
– Include a diagnosis and be signed by a licensed physician.
Contribution and rollover rules:
– Contributions must be in cash and are not deductible for federal income tax.
– An ABLE account can’t receive aggregate contributions over the annual gift tax exclusion (adjusted for inflation), except for rollovers.
– Rollovers:
– Amounts can be rolled over tax-free to another ABLE account for the same beneficiary, or to an ABLE account for a brother, sister, stepbrother, or stepsister who is also an eligible individual.
– Once an ABLE account is established for a beneficiary, any later account set up for that beneficiary will not be treated as an ABLE account.
Tax treatment and distributions:
– Earnings grow tax-deferred.
– Distributions are includible in income to the extent they consist of earnings.
– Distributions are excludable from income if the total for the year does not exceed the beneficiary’s qualified disability expenses (QDEs).
– If a distribution exceeds QDEs, a pro-rata portion is excludable; any includible earnings are subject to an additional 10% tax, unless the distribution is made after the beneficiary’s death.
– QDEs include expenses related to the disability: education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, oversight and monitoring, funeral and burial, and other approved expenses consistent with Section 529A.
TCJA updates for ABLE:
– A designated beneficiary may claim the saver’s credit for contributions to their ABLE account.
– After hitting the annual gift tax exclusion limit, the designated beneficiary may contribute extra up to the lesser of:
– The federal poverty line for a one-person household, or
– The individual’s compensation for the year.
529-to-ABLE rollovers:
– Amounts from a 529 plan can roll over to an ABLE account without penalty if the ABLE account is owned by the 529 beneficiary or a family member of that beneficiary.
– Rolled-over amounts count toward the ABLE annual contribution limit. Any excess over that limit is includible in gross income.
Documentation and records to keep
- Form 1099-Q: Reports QTP distributions to the recipient (beneficiary or account owner, depending on who actually received the funds).
- Disability certification for ABLE: Must include a physician-signed diagnosis and meet the timing and severity standards noted above.
- Contribution records: Track contributions to ensure they do not exceed amounts necessary for QTPs and do not exceed the gift tax exclusion for ABLE accounts (plus any allowed extra ABLE contributions by the beneficiary).
- Distribution support: Keep invoices and receipts to show qualified K–12 tuition (up to $10,000 per student, per year), higher-education costs, registered apprenticeship expenses, and any student loan payments up to the $10,000 lifetime limit per beneficiary (plus $10,000 per sibling).
How to use these programs in practice
Follow a simple flow:
1. Prepay or contribute to a QTP or, for disability-related savings, to an ABLE account (in cash for ABLE).
2. When it’s time to pay qualified costs, request a distribution. A QTP may distribute directly to the beneficiary or pay the school for the beneficiary’s benefit; in either case, the beneficiary is the recipient.
3. At tax time, the recipient receives Form 1099-Q for QTP distributions. Compare distributions to adjusted qualified education expenses to determine if any earnings are taxable.
4. For ABLE accounts, confirm each distribution aligns with qualified disability expenses to avoid income inclusion and the 10% additional tax on includible amounts.
Practical tips and common pitfalls
- Match distributions to qualified costs in the same tax year. If distributions exceed adjusted qualified expenses, the earnings portion may be taxable.
- For K–12, watch the $10,000 per-student, per-year cap. Exceeding it creates a taxable portion.
- For student loans, remember the $10,000 lifetime limit for the beneficiary and an extra $10,000 for each sibling. Track prior-year amounts.
- For ABLE accounts, confirm eligibility (disability before age 26) and keep the signed physician diagnosis on file.
- If rolling a 529 to an ABLE account, check that the ABLE account owner is the 529 beneficiary or a qualifying family member, and stay within the annual ABLE contribution limit.
Key takeaway: Contribute within limits, spend on approved costs, keep records, and watch the key dollar caps so tax-free benefits stay intact.
Coordination notes families often consider
- ESA vs QTP: QTPs have broader age flexibility, higher contribution potential, and no income limits for contributors.
- Recipient identity matters: If the plan pays the beneficiary or the school for the beneficiary, any taxable portion belongs to the beneficiary. Otherwise, the account owner is the recipient.
Quick compliance checklist
- QTP contributions: Not more than necessary for the beneficiary’s education needs. No income limits.
- K–12 tuition from QTP: Up to $10,000 per student, per year.
- Apprenticeships and student loans: Covered under the SECURE Act; student loan limit is $10,000 lifetime per beneficiary (+ $10,000 per sibling).
- ABLE eligibility: Disability before age 26; certification with a physician’s signed diagnosis.
- ABLE contributions: Cash basis; within the annual gift tax exclusion plus allowed extra by the beneficiary (subject to limits).
- Distributions: Keep receipts; avoid exceeding qualified expenses to prevent tax on earnings and the 10% additional tax for ABLE distributions that are includible in income.
This roadmap gives families, including newcomers, a clear way to use QTP and ABLE rules as written: contribute within limits, spend on approved costs, keep records, and watch the key dollar caps so tax-free benefits remain available.
This Article in a Nutshell
Families new to the U.S. benefit from 529 plans: tax-free growth and tax-free withdrawals for qualified education, K–12 limits, apprenticeships, and student loan rollovers—track receipts, respect contribution caps, and report distributions on Form 1099-Q to avoid unexpected taxes.