FAQ FRIDAY - April 25, 2008

Q. Can Qualified Tuition Plans or 529 Plans be used for prep school?

A. Distributions from these plans must be used for qualified higher education expenses to avoid the tax and penalty on the earnings.

If you know that you will have tuition for elementary and secondary expenses, you may want to consider establishing a Coverdell Education Savings Account. There are limits on how much you may contribute to these plans based on adjusted gross income and there is no deduction for them but the earnings are tax deferred and distributions tax free is used for qualified education expenses. Please consult a tax advisor for the specific rules for these.


IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of 1. avoiding penalties under the Internal Revenue Code or 2. promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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