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IRC Section 529, As Amended

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Section 529 of the Internal Revenue Code as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

  • Additions are shown in bold.
  • Deletions are stricken through.
  • Amendments are effective January 1, 2002.
  • The EGTRRA changes are effective through December 31, 2010, and will sunset at that time unless Congress repeals the sunset provision or otherwise extends the period for which the amendments are effective. (The EGTRRA 2001 improvements were made permanent by the Pension Protection Act of 2006, P.L. 109-280.)
  • The full citation is US Code Title 26 (Internal Revenue Code), Subtitle A, Chapter 1, Subchapter F, Part VIII, Section 529. The copy available from the GPO Access web site may not yet reflect the EGTRRA amendments.
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Sec. 529. Qualified State Tuition Programs

  1. GENERAL RULE. -- A qualified State tuition program shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, such program shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).
  2. QUALIFIED STATE TUITION PROGRAM. -- For purposes of this section --
    1. IN GENERAL. -- The term 'qualified State tuition program' means a program established and maintained by a State or agency or instrumentality thereof or by 1 or more eligible educational institutions --
      1. under which a person --
        1. may purchase tuition credits or certificates on behalf of a designated beneficiary which entitle the beneficiary to the waiver or payment of qualified higher education expenses of the beneficiary, or
        2. in the case of a program established and maintained by a State or agency or instrumentality thereof, may make contributions to an account which is established for the purpose of meeting the qualified higher education expenses of the designated beneficiary of the account, and
      2. which meets the other requirements of this subsection.

      Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sentence, the term .qualified trust. means a trust which is created or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met.

    2. CASH CONTRIBUTIONS. -- A program shall not be treated as a qualified State tuition program unless it provides that purchases or contributions may only be made in cash.
    3. REFUNDS. -- A program shall not be treated as a qualified State tuition program unless it imposes a more than de minimis penalty on any refund of earnings from the account which are not --
      1. used for qualified higher education expenses of the designated beneficiary,
      2. made on account of the death or disability of the designated beneficiary, or
      3. made on account of a scholarship (or allowance or payment described in section 135(d)(1)(B) or (C)) received by the designated beneficiary to the extent the amount of the refund does not exceed the amount of the scholarship, allowance, or payment.

    4. 3. SEPARATE ACCOUNTING. -- A program shall not be treated as a qualified State tuition program unless it provides separate accounting for each designated beneficiary.
    5. 4. NO INVESTMENT DIRECTION. -- A program shall not be treated as a qualified State tuition program unless it provides that any contributor to, or designated beneficiary under, such program may not directly or indirectly direct the investment of any contributions to the program (or any earnings thereon).
    6. 5. NO PLEDGING OF INTEREST AS SECURITY. -- A program shall not be treated as a qualified State tuition program if it allows any interest in the program or any portion thereof to be used as security for a loan.
    7. 6. PROHIBITION ON EXCESS CONTRIBUTIONS. -- A program shall not be treated as a qualified State tuition program unless it provides adequate safeguards to prevent contributions on behalf of a designated beneficiary in excess of those necessary to provide for the qualified higher education expenses of the beneficiary.

  3. TAX TREATMENT OF DESIGNATED BENEFICIARIES AND CONTRIBUTORS. --
    1. IN GENERAL. -- Except as otherwise provided in this subsection, no amount shall be includible in gross income of --
      1. a designated beneficiary under a qualified State tuition program, or
      2. a contributor to such program on behalf of a designated beneficiary, with respect to any distribution or earnings under such program.

    2. GIFT TAX TREATMENT OF CONTRIBUTIONS. -- For purposes of chapters 12 and 13 --
      1. IN GENERAL. -- Any contribution to a qualified tuition program on behalf of any designated beneficiary --
        1. shall be treated as a completed gift to such beneficiary which is not a future interest in property, and
        2. shall not be treated as a qualified transfer under section 2503(e).
      2. TREATMENT OF EXCESS CONTRIBUTIONS. -- If the aggregate amount of contributions described in subparagraph (A) during the calendar year by a donor exceeds the limitation for such year under section 2503(b), such aggregate amount shall, at the election of the donor, be taken into account for purposes of such section ratably over the 5-year period beginning with such calendar year.

    3. DISTRIBUTIONS. --
      1. IN GENERAL. -- Any distribution under a qualified State tuition program shall be includible in the gross income of the distributee in the manner as provided under section 72 to the extent not excluded from gross income under any other provision of this chapter.
      2. IN-KIND DISTRIBUTIONS. -- Any benefit furnished to a designated beneficiary under a qualified State tuition program shall be treated as a distribution to the beneficiary. DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES. -- For purposes of this paragraph --
        1. IN-KIND DISTRIBUTIONS. -- No amount shall be includible in gross income under subparagraph (A) by reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense.
        2. CASH DISTRIBUTIONS. -- In the case of distributions not described in clause (i), if --
          1. such distributions do not exceed the qualified higher education expenses (reduced by expenses described in clause (i)), no amount shall be includible in gross income, and
          2. in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distributions.
        3. EXCEPTION FOR INSTITUTIONAL PROGRAMS. -- In the case of any taxable year beginning before January 1, 2004, clauses (i) and (ii) shall not apply with respect to any distribution during such taxable year under a qualified tuition program established and maintained by 1 or more eligible educational institutions.
        4. TREATMENT OF DISTRIBUTIONS. -- Any benefit furnished to a designated beneficiary under a qualified tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph.
        5. COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS. -- The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced--
          1. as provided in section 25A(g)(2), and
          2. by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A.
        6. COORDINATION WITH EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS. -- If, with respect to an individual for any taxable year --

          1. the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed
          2. the total amount of qualified higher education expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (v)) for such year,
          the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).
      3. CHANGE IN BENEFICIARIES OR PROGRAMS. --
        1. ROLLOVERS. -- Subparagraph (A) shall not apply to that portion of any distribution which, within 60 days of such distribution, is transferred to the credit
          1. to another qualified tuition program for the benefit of the designated beneficiary, or
          2. to the credit of another designated beneficiary under a qualified State tuition program who is a member of the family of the designated beneficiary with respect to which the distribution was made.
        2. CHANGE IN DESIGNATED BENEFICIARIES. -- Any change in the designated beneficiary of an interest in a qualified State tuition program shall not be treated as a distribution for purposes of subparagraph (A) if the new beneficiary is a member of the family of the old beneficiary.
        3. LIMITATION ON CERTAIN ROLLOVERS. --Clause (i)(I) shall not apply to any transfer if such transfer occurs within 12 months from the date of a previous transfer to any qualified tuition program for the benefit of the designated beneficiary.
      4. OPERATING RULES. -- For purposes of applying section 72 --
        1. to the extent provided by the Secretary, all qualified State tuition programs of which an individual is a designated beneficiary shall be treated as one program,
        2. except to the extent provided by the Secretary, all distributions during a taxable year shall be treated as one distribution, and
        3. except to the extent provided by the Secretary, the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins.

    4. ESTATE TAX TREATMENT. --
      1. IN GENERAL. -- No amount shall be includible in the gross estate of any individual for purposes of chapter 11 by reason of an interest in a qualified tuition program.
      2. AMOUNTS INCLUDIBLE IN ESTATE OF DESIGNATED BENEFICIARY IN CERTAIN CASES. -- Subparagraph (A) shall not apply to amounts distributed on account of the death of a beneficiary.
      3. AMOUNTS INCLUDIBLE IN ESTATE OF DONOR MAKING EXCESS CONTRIBUTIONS. -- In the case of a donor who makes the election described in paragraph (2)(B) and who dies before the close of the 5-year period referred to in such paragraph, notwithstanding subparagraph (A), the gross estate of the donor shall include the portion of such contributions properly allocable to periods after the date of death of the donor.

    5. OTHER GIFT TAX RULES. -- For purposes of chapters 12 and 13 --
      1. TREATMENT OF DISTRIBUTIONS. -- Except as provided in subparagraph (B), in no event shall a distribution from a qualified tuition program be treated as a taxable gift.
      2. TREATMENT OF DESIGNATION OF NEW BENEFICIARY. -- The taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) only if the new beneficiary is a generation below the generation of the old beneficiary (determined in accordance with section 2651).

    6. ADDITIONAL TAX. -- The tax imposed by section 530(d)(4) shall apply to any payment or distribution from a qualified tuition program in the same manner as such tax applies to a payment or distribution from an education individual retirement account. This paragraph shall not apply to any payment or distribution in any taxable year beginning before January 1, 2004, which is includible in gross income but used for qualified higher education expenses of the designated beneficiary.

  4. REPORTS. -- Each officer or employee having control of the qualified State tuition program or their designee shall make such reports regarding such program to the Secretary and to designated beneficiaries with respect to contributions, distributions, and such other matters as the Secretary may require. The reports required by this subsection shall be filed at such time and in such manner and furnished to such individuals at such time and in such manner as may be required by the Secretary.
  5. OTHER DEFINITIONS AND SPECIAL RULES. -- For purposes of this section --
    1. DESIGNATED BENEFICIARY. -- The term "designated beneficiary" means --
      1. the individual designated at the commencement of participation in the qualified State tuition program as the beneficiary of amounts paid (or to be paid) to the program,
      2. in the case of a change in beneficiaries described in subsection (c)(3)(C), the individual who is the new beneficiary, and
      3. in the case of an interest in a qualified State tuition program purchased by a State or local government (or agency or instrumentality thereof) or an organization described in section 501(c)(3) and exempt from taxation under section 501(a) as part of a scholarship program operated by such government or organization, the individual receiving such interest as a scholarship.

    2. MEMBER OF FAMILY. -- The term "member of the family" means, with respect to any designated beneficiary --
      1. the spouse of such beneficiary;
      2. an individual who bears a relationship to such beneficiary which is described in paragraphs (1) through (8) of section 152(a); and
      3. the spouse of any individual described in subparagraph (B); and
      4. any first cousin of such beneficiary.

    3. QUALIFIED HIGHER EDUCATION EXPENSES. --
      1. IN GENERAL . -- The term "qualified higher education expenses" means
        1. tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution; and
        2. expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance.
      2. ROOM AND BOARD INCLUDED FOR STUDENTS WHO ARE AT LEAST HALF-TIME. --
        1. IN GENERAL. -- In the case of an individual who is an eligible student (as defined in section 25A(b)(3)) for any academic period, such term shall also include reasonable costs for such period (as determined under the qualified State tuition program) incurred by the designated beneficiary for room and board while attending such institution. For purposes of subsection (b)(7), a designated beneficiary shall be treated as meeting the requirements of this clause.
        2. LIMITATION. -- The amount treated as qualified higher education expenses by reason of the preceding sentence shall not exceed the minimum amount (applicable to the student) included for room and board for such period in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 108711, as in effect on the date of the enactment of this paragraph) for the eligible educational institution for such period.
        1. Limitation. --The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed --
          1. the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or
          2. if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.

    4. APPLICATION OF SECTION 514. -- An interest in a qualified State tuition program shall not be treated as debt for purposes of section 514.
    5. ELIGIBLE EDUCATIONAL INSTITUTION. -- The term "eligible educational institution" means an institution --
      1. which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this paragraph, and
      2. which is eligible to participate in a program under title IV of such Act.

The following section of the Internal Revenue Code is included because 152(a) paragraphs (1) through (8) is referenced by paragraph 529(e)(2)(B).

Sec. 152. Dependent defined

  1. General definition. For purposes of this subtitle, the term ''dependent'' means any of the following individuals over half of whose support, for the calendar year in which the taxable year of the taxpayer begins, was received from the taxpayer (or is treated under subsection (c) or (e) as received from the taxpayer):
    1. A son or daughter of the taxpayer, or a descendant of either,
    2. A stepson or stepdaughter of the taxpayer,
    3. A brother, sister, stepbrother, or stepsister of the taxpayer,
    4. The father or mother of the taxpayer, or an ancestor of either,
    5. A stepfather or stepmother of the taxpayer,
    6. A son or daughter of a brother or sister of the taxpayer,
    7. A brother or sister of the father or mother of the taxpayer,
    8. A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the taxpayer, or
    9. An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 7703, of the taxpayer) who, for the taxable year of the taxpayer, has as his principal place of abode the home of the taxpayer and is a member of the taxpayer's household.

 

 
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