Today there are several tax-smart ways both to build a college fund and to pay for education expenses. Each option has its own restrictions and limitations, so deciding which to use requires careful planning. This brochure gives a quick overview of the major education tax breaks available.
Consider these tax-advantaged ways to save for your child’s education. With some options, the earnings are tax-deferred. With others, the earnings are tax-free.
Do your homework before you invest in a Section 529 plan. The same federal tax rules apply to all 529 plans. However, the benefits and restrictions for different state and private plans vary widely.
Paying education expenses may entitle you to tax deductions and/or tax credits. Tax credits are generally more valuable than tax deductions because they reduce your income tax dollar for dollar. Here are the credits and deductions you should know about.
Information presented in this brochure is of a general nature and should not be acted upon without further details and/or professional assistance. For more information, contact our office.
American Opportunity Credit
A tax credit allowed per student for the first four years of post-secondary education. Subject to income limits.
Lifetime Learning Credit
A tax credit allowed per family for all years of post-secondary education and for certain job-related courses. Subject to income limits.
Coverdell Education Savings Accounts
Annual contribution limit is $2,000. Tax-free withdrawals if funds used to pay elementary, secondary, or higher education expenses. Subject to income limits.
Education Savings Bonds
Interest on Series EE and Series I savings bonds tax-free if used for qualified higher education expenses. Subject to income limits.
Section 529 Plans
Plans allow individuals to set up an account on behalf of someone else (e.g., a child or grandchild) that can be used to pay college expenses. The two types include prepaid tuition plans and college savings plans. Not subject to income limits.
Student Loan Interest Deduction
Up to $2,500 above-the-line deduction. Subject to income limits.
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