TN 17 (10-09)

SI 01140.150 Qualified Tuition Programs (QTPs)

A. What is a Qualified Tuition Program?

Qualified Tuition Programs (QTPs), also referred to as Section 529 Plans, allow individuals to prepay or contribute to an account established for paying a designated beneficiary’s education expenses beyond high school at an eligible educational institution. QTPs can be established and maintained by states, agencies, instrumentalities of states, and eligible educational institutions. Individuals may contribute to a QTP regardless of the amount of their income.

B. Types of QTPs

There are two types of QTPs (529 Plans): savings plans and pre-paid plans.

1. Savings plans

  • They are accounts that provide investment options such as mutual funds or money market funds (similar to a retirement account (e.g. 401K)).

  • They are not guaranteed by the State and the value is subject to fluctuations in financial markets (e.g. the stock market).

  • They can be established for a beneficiary of any age.

2. Prepaid plans

  • They allow individuals to purchase units or credits at participating colleges and universities for tuition.

  • They allow individuals to lock-in future tuition rates at current prices.

  • States may guarantee investments in plans that they sponsor.

  • Most plans must be established for a beneficiary by a certain age or grade.

C. Definitions

1. Account Owner

An account owner, also referred to as a donor, is the individual who has ownership of the account and directs use of the funds. Most plans allow the account owner to reclaim the funds deposited into a QTP at any time.

2. Designated beneficiary

A designated beneficiary is the individual (i.e. a student or future student) who is to receive the benefit of the funds in the account. The designated beneficiary can be changed to a member of the beneficiary’s family.

3. Members of the beneficiary’s family

The beneficiary’s family includes the beneficiary’s spouse and the following other relatives of the beneficiary:

  1. son, daughter, stepchild, foster child, adopted child, or a descendant of any of them;

  2. brother, sister, stepbrother, or stepsister;

  3. father, mother, or ancestor of either;

  4. stepfather or stepmother;

  5. son or daughter of a brother or sister;

  6. brother or sister of father or mother;

  7. son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law;

  8. the spouse of any individual listed above; or

  9. first cousin.

4. Eligible educational institution

An eligible educational institution is any college, university, vocational school, or post-secondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, non-profit, and proprietary (i.e. privately owned profit making) post-secondary institutions. It also includes certain educational institutions located outside the U.S.

5. Withdrawals or distributions

Withdrawals or distributions are the issuance of funds from the account. Distributions are payable to an eligible educational institution, the QTP account owner, the designated beneficiary or the estate of the beneficiary, as directed by the account owner. The account owner determines when distributions are made from the account and for what purpose.

6. Gift

Distributions from a QTP meet the definition of a gift provided:

  • They are not repayment for goods or services provided by the designated beneficiary;

  • They are not given because of a legal obligation on the donor’s part; and

  • They are given irrevocably (i.e. the donor relinquishes all control). For additional information on gifts, see SI 00830.520.

7. Rollover contribution

A rollover contribution is any amount “rolled over” or transferred to another QTP for the benefit of the same beneficiary or a member of the beneficiary’s family.

8. Educational expenses

Educational expenses are tuition, fees, and other necessary educational expenses at any educational institution. Examples of educational expenses include:

  1. tuition and fees;

  2. books;

  3. laboratory fees;

  4. student activity fees;

  5. transportation;

  6. stationary supplies;

  7. technology fees; and

  8. impairment-related expenses necessary to attend school or perform schoolwork (e.g. special prosthetic devices necessary to operate school machines or equipment).

NOTE: Educational expenses do not include the cost of food and shelter.

D. QTP as a countable resource

Funds in a Qualified Tuition Program (QTP), also referred to as a Section 529 Plan, are a countable resource to the individual who owns the account (e.g. a parent or grandparent). Normally, the owner is the person who established the account. In most instances, the individual who establishes a QTP retains the ability to withdraw any or all of the funds in the account for his or her own benefit.

NOTE: In most cases, the designated beneficiary (i.e. the student or future student) is not the owner of the account and does not have any rights to the funds in the account.

EXAMPLE: A disabled child is the designated beneficiary of a QTP that was established by the child’s father who lives in the household. The field office (FO) determines that the father is the owner of the QTP and it is a countable resource to him. In determining eligibility for Supplemental Security Income (SSI) of the child, the FO deems the child’s resources to include the resources of the father, including the QTP, to the extent that the father’s resources exceed the applicable resource limit.

See Details

1. Value of a QTP

The value of the QTP is the current market value minus any applicable penalties, but not minus taxes. In addition, any maintenance fees associated with the account, whether scheduled or collected, do not reduce its value.

2. Dividends and interest earned on a QTP

Dividends and interest are returns on capital investments such as stocks, bonds, or savings accounts. Exclude dividends and interest earned on QTPs from income.

3. Rule for withdrawals or distributions from a QTP

Withdrawals or distributions to the account owner are not income but a conversion of a resource (i.e. the resource in a different form). The distribution is a countable resource to the account owner.

Assume that any distribution the designated beneficiary receives from a QTP is a gift, unless there is evidence to the contrary (e.g. there is an allegation that the distribution must be repaid). Distributions, which meet the definition of a gift and are used for educational expenses of the designated beneficiary, are excluded as income in the month of receipt.

If an excluded distribution is retained into the month following the month of receipt, it is an excluded resource of the designated beneficiary for 9 months beginning with the month after the month of receipt. For information on educational gifts, see SI 00830.455 and SI 01130.455.

If the designated beneficiary spends any portion of a QTP distribution for a purpose other than his or her educational expenses or no longer intends to use the funds for his or her educational expenses, the funds are income at the earlier of two points:

  • in the month the funds are spent; or

  • in the month the individual no longer intends to use the funds for educational expenses.

If a countable distribution is retained into the month following the month of receipt, it is a countable resource.

4. Examples of QTP distributions

EXAMPLE 1: Distributions excluded as income and resources

A disabled adult, age 19, is the designated beneficiary of a QTP. On January 10, the disabled adult receives $3,000 from the QTP. The disabled adult spends $2,800 for tuition and fees in January. As of February 1, $200 of the distribution remains. The disabled adult tells the field office (FO) that he will use the rest of the money for future educational expenses.

The FO determines:

  • The disabled adult is not the owner of the QTP; therefore, it is not a resource to the individual.

  • The distribution meets the definition of a gift for educational purposes and is excluded from income in the month of January.

  • The remaining amount of $200 is excluded from resources for the months of February through October. As of November 1, any portion that remains is a countable resource of the disabled adult.

EXAMPLE 2: Distributions counted as income and resources

A disabled adult, age 21, is the designated beneficiary of a QTP. On August 5, the disabled adult receives $1,500 from the QTP. During the month of August, the individual spends $1,350 on books. The individual spends $75 on groceries in August and saves $75. The disabled adult tells the FO that she intends to add the rest of the money to her “emergency fund” that she has set aside for non-educational expenses.

The FO determines:

  • The disabled adult is not the owner of the QTP; therefore, it is not a resource to the individual.

  • That $1,350 of the distribution meets the definition of a gift for educational purposes and is excluded from income in the month of August.

  • That $150 of the distribution is countable income to the individual for the month of August because the disabled adult spent $75 on non-educational expenses and intends to use $75 for non-educational expenses. As of September 1, any portion of the $75 that remains is a countable resource of the disabled adult.

5. Rollover or transfer of QTP funds

Funds in a QTP may be transferred or “rolled over” to a member of the beneficiary’s family. A transfer or “roll over” of QTP funds from a beneficiary to a family member does not necessarily indicate a transfer of account ownership. When there is a valid transfer, the original account owner no longer owns the property.

See Details

EXAMPLE 1

A disabled child lives in the household with an ineligible parent and ineligible child. On April 10, the ineligible parent establishes a QTP that is designated for the disabled child. The FO determines that the ineligible parent is the owner of the QTP and it is a countable resource to the parent as of May 1. In determining eligibility for SSI of the disabled child, the FO deems the child’s resources to include the resources of the ineligible parent, including the QTP, to the extent that the parent’s resources exceed the applicable resource limit.

On January 3 of the following year, the ineligible parent “rolls over” the funds to the ineligible child because the funds are no longer foreseen as necessary to pay the college education expenses of the disabled child. The FO determines that, although the parent “rolled over” the funds to a member of the beneficiary’s family, the parent retains ownership of the funds (i.e., a valid transfer of ownership did not occur). The funds remain a countable resource to the ineligible parent.

EXAMPLE 2

An eligible individual lives in the household with an ineligible spouse and ineligible child. On January 6, the ineligible spouse establishes a QTP that is designated for the ineligible child. The FO determines that the ineligible spouse is the owner of the QTP and it is a countable resource as of February 1. In determining eligibility for SSI of the eligible individual, the FO determines the total countable resources are the combination of the resources of the eligible individual and the ineligible spouse after all applicable exclusions are applied.

On June 6, the ineligible spouse transfers ownership of the funds to the child’s grandfather. The FO determines that a valid transfer occurred. As of July 1, the QTP is not a countable resource to the ineligible spouse; however, the FO must determine whether the ineligible spouse received fair market value (FMV) for the QTP. If not, a period of SSI ineligibility may exist for the eligible individual.

E. Verifying QTP balances for initial claims and posteligibility

1. Obtain evidence of QTP balances

a. Evidence must show

  • the name of the account owner,

  • the type of transaction (i.e. deposit, withdrawal or transfer),

  • the date of the transaction,

  • the amount of the transaction,

  • a first-of-the-month (FOM) account balance, or

  • sufficient information to derive ownership and a FOM balance.

b. Individual’s records

  • Obtain a copy of any evidence in the individual’s possession (e.g. an account statement).

  • Use the individual’s records if they appear to be unaltered and you may derive a complete transaction history.

  • Fax any paper documentation to the electronic folder (EF) or the Non-disability Repository for Evidentiary Documents (NDReD). For more information on the retention of paper material after faxing into either the EF or NDReD, see GN 00301.322.

c. Verification from source

  • Contact the educational institution, the State, or the agency or instrumentality of the State (e.g. a brokerage firm) that administers the program by telephone, if possible, and record the information (e.g. name of account owner and FOM balances) on a form SSA-5002 Report of Contact or DROC screen.

  • Obtain a completed form SSA-4641 Authorization for the Social Security Administration to Obtain Account Records from a Financial Institution for accounts administered by a financial institution. For states that use the e4641 or the Access to Financial Institutions (AFI) process, see SI 01140.206.

  • Obtain any account information (e.g. account statements or notices) provided by the organization that administers the program. Fax any paper documentation to the EF or NDReD. For retention of paper material after faxing into either the EF or NDReD, see GN 00301.322.

F. Verifying educational expenses

1. When to develop

Verify the costs of educational expenses when the designated beneficiary or an agent acting on behalf of the designated beneficiary alleges receiving funds from a QTP.

2. Obtaining evidence of educational expenses

a. Evidence must show

  • the type of educational expense (e.g. tuition),

  • cost, and

  • date the expense was due or paid.

An individual’s statement either signed or recorded on a DROC screen is acceptable evidence of expenses when it is unreasonable to obtain other evidence (e.g. daily bus fare or a small expendable item). Do not apply this tolerance to major expenses such as tuition, fees, and books.

b. Individual’s record

  • Obtain a copy of any evidence an individual has in his or her possession (e.g. receipt or bill with a cancelled check).

  • Fax any paper documentation to the electronic folder (EF) or the Non-disability Repository for Evidentiary Documents (NDReD). For retention of paper material after faxing into either the EF or NDReD, see GN 00301.322.

c. Verification from source

If an individual cannot provide evidence that suffices for a determination,

  • Obtain the necessary information via telephone, if possible, from a knowledgeable source (e.g. school or college, tutor, bookstore, etc.).

  • Record any information that is provided by telephone on a form SSA-5002 Report of Contact or DROC screen.

  • Fax any paper documentation to the EF or NDReD. For retention of paper material after faxing into either the EF or NDReD, see GN 00301.322.

G. References


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0501140150
SI 01140.150 - Qualified Tuition Programs (QTPs) - 10/22/2009
Batch run: 10/22/2009
Rev:10/22/2009