Education tax planning can optimize the available breaks for saving and paying for school expenses. Here are some tips.
Saving for education
- Section 529 plans include prepaid tuition programs and college savings accounts. Prepaid tuition programs let you buy future tuition credits at today’s rates, while college savings accounts let you set aside funds in an investment account. You get no tax deduction, but you can use the money tax-free for qualified college expenses.
- Coverdell education savings accounts have some characteristics of Section 529 plans – and a few important differences. Nondeductible annual contributions of $2,000 can be made not only for qualified college costs, but also for many K-12 expenses. Unlike 529 plans, phase-out rules prevent contributions when your income exceeds certain levels.
Paying for education
- If you’re currently paying college expenses, your tax planning should take the various available deductions and credits into account. These include the American opportunity credit, the lifetime learning credit, and the student loan interest deduction.
If you have education expenses to pay now or in the future, planning will help you take advantage of the tax breaks. Contact us for details and assistance.