Contributions to the account are invested according to the investment options selected by the account owner. After the account has been open for 36 months, the account owner can withdraw money without penalty to pay for the qualified higher education expenses of the beneficiary. The Program provides significant tax advantages. Generally, this deduction will be somewhat more valuable to New York residents than to non-residents. While in the account, earnings are exempt from New York income taxes and federal taxes are deferred.
Withdrawals used for qualified higher education expenses are also exempt from New York income tax.
Federal taxes will be due on the earnings portion of such withdrawals, but are payable at the beneficiary's rather than the account owner's federal tax rate. Use the money in the account to pay tuition and other qualified higher education expenses at any eligible public or private college or university, trade, vocational or professional school anywhere. Other qualified higher education expenses include fees, eligible room and board, books, supplies, and required equipment. Governor George E. Pataki's Higher Education Services Corporation and State Comptroller H. Carl McCall jointly oversee the Program. The Program's investments are managed by TIAA, a part of TIAA-CREF, a leading financial services organization.