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Tax Benefits

The Internal Revenue Service (IRS) provides tax benefits for education. These tax benefits can be used to get back some of the money you spend on tuition or loan interest or to maximize your college savings.

IRS Publication 970, Tax Benefits for Education, will help you determine which federal income tax benefits you may qualify for.  Some of the benefits are:

Tax Credits for Higher Education Expenses

There are two credits that help offset the costs of tuition, fees, books and equipment by reducing the amount of your income tax:

American opportunity Credit

This allows you to claim up to $2,500 per student per year for the first four years of school as the student works toward a degree or similar credential.

Lifetime Learning Credit

This allows you to claim up to $2,000 per student per year for any college or career school tuition, fees, books, supplies and equipment that were required for the course and had to be purchased from the school.

Even if you normally wouldn't file a tax return because of your income level, be sure to look into it!  If you don't you'll miss out on the  tax credits that would put money in your pocket.

Coverdell Education Savings Account

This allows up to $2,000 a year to be put aside for a  student's education expenses (elementary, secondary, or college)

Qualified Tuition Programs (529 Plans)

This plan is established by a state or school so that you can either prepay or save up to pay education-related expenses.  Once you're in college or career school and you withdraw money from your account to pay your education expenses, the money you withdraw will not be taxed.  

Student Loan Interest Deduction

You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent.  This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses.  The maximum deduction is $2,500 a year.

Using IRA Withdrawals for College Costs

  • You may withdraw from an IRA to pay higher education expenses for yourself, your spouse, your child, or your grandchild
  • You will owe federal income tax on the amount withdrawn, but it won't be subject to the early withdrawal penalty.
  • The withdrawal may change your financial aid eligibility for the next academic year as the amount withdrawn is included in your AGI, which must be reported to FAFSA.

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