Section 529 Qualified Tuition Programs: A Savings Opportunity for High-Income Taxpayers

Posted in Tax Highlights May 2008

Keywords: education tax benefits, Section 529, tax, tuition

Section 529 of the Internal Revenue Code provides rules for the income tax treatment of qualified tuition programs sponsored by a state or by a private college or university.

Which two types of tuition programs qualify under Section 529?

  • Prepaid tuition programs—A person buys tuition credits or certificates, which enable a beneficiary to a waiver or payment of higher-education expenses. A program offered by a private college or university must be of this type. College Illinois is an example of prepaid tuition program.
  • College saving plan—A person contributes to an account established to meet a beneficiary's higher-education expenses.

Section 529 plan distributions are not taxable to the designated beneficiary to the extent that they do not exceed qualified educational expenses.

What makes 529 plans a good opportunity for high-income taxpayers?

Section 529 plans are an attractive option for high-wealth individuals because there is no ceiling on annual contributions and no phase-outs for higher-income taxpayers.

What are the limitations of 529 plans?

Unlike Coverdell accounts, Section 529 programs cannot be used for K-through-12 education expenses, nor can the plan contributor direct investment under the program.

For more information, contact Mike Calahan at 312-980-2996 or Tara Wells at 312-980-3277 for more information.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.


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This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.