Hawaii adopts the federal provisions of Internal Revenue Code section 529 (with respect to qualified tuition programs) except for the 10% tax on distributions not used for educational expenses. A qualified tuition program (QTP) is a program set up to allow you to either prepay a students tuition or contribute to an account established for paying a students qualified higher education expenses at an eligible educational institution. Prior to 2002, a QTP could only be established and maintained by a state or an agency or instrumentality of the state. Beginning in 2002, QTPs can also be established and maintained by educational institutions.

Qualified Higher Education Expenses

These are the tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. They also include the reasonable costs of room and board for a beneficiary who is at least a half-time student. Beginning in 2002, the calculation of the amount that is considered reasonable for room and board expenses has been changed. Beginning in 2002, they also include expenses of a special needs beneficiary that are necessary for that persons enrollment or attendance at an eligible institution.

Distributions from State-maintained QTPs

Beginning in 2002, a distribution from a QTP established and maintained by a state (or agency or instrumentality of the state) can be excluded from income if the amount distributed is used for higher education.

QTPs Maintained by Educational Institutions

Beginning in 2002, you can make contributions to a QTP established and maintained by one or more eligible educational institutions. Any earnings distributed before January 1, 2004, will be taxable.

Rollovers of QTPs, Change of Beneficiaries

Amounts in a QTP can be rolled over tax free to the QTP of another beneficiary, subject to certain limitations. Starting in 2002, amounts in a QTP of one beneficiary can be rolled over tax free to another QTP for the same beneficiary, subject to certain limitations. The beneficiary of a QTP can be changed, subject to certain limitations.

For more information on qualified tuition programs, see federal Publication 970.

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