A qualified tuition plan (QTP) is a personal savings account. You use it to pay for a student's qualified education expenses. The student must go to an eligible educational institution. Distributions from the account are tax-free if you use the money for qualified expenses, like room and board.

A state or an agency of the state usually establishes QTPs, and most states now offer them. Also, most plans are open to residents of any state. A private educational institution can also establish a QTP. However, you can only use the money to prepay qualified education expenses. To be an eligible educational institution, both of these must usually apply:

• The institution is a:
  • College
  • University
  • Vocational school
  • Other postsecondary educational institution
• The institution must be eligible to participate in a student-aid program administered by the Department of Education.

Contact your state government or the educational institution you're interested in to find out if they participate in a QTP.

To learn more, see:

• IRS Publication 525: Taxable and Nontaxable Income
• IRS Publication 970: Tax Benefits for Education