Hello, everyone. I hope you’re enjoying this beautiful day. We’re gonna have a number of them over the next week and hope everybody’s safe. This week’s topic is college education tax benefits. As we all know, a college degree is expensive. The average cost of in state school degree is $88,000 a degree from a private university costs around $200,000. Obtaining a college education could be important for some individuals. Having a degree may offer more financially secure future and the ability to follow one’s dreams. The cost could definitely be worth it. Now the federal government recognizes that students attaining a college education, maybe greater earnings in the future and higher income taxes for the government. Therefore, they encourage college attendance, so we’re going to take a look. At a few ways, education is incentivized by our government. The first area colleges encourages through saving vehicles. Now saving money is the first step, or it’s making college attainable. Three earlier family starts stating the better Now. One vehicle to look at is the Coverdale IRA. People haven’t been using these much. With the advent of the 5 29 plan, I thought I’d cover it anyways. Because it is available. The maximum contribution is 2000 per year for beneficiaries under age 18 or with special needs. The contributions are not deductible federally, but states may allow a deduction. Balances grow tax free and distributions or non taxable refuse for qualified education expenses. Now there are some income phase out. So if you make between 95 110,000 and you’re a single filer, there will be a phase out where you cannot do a covered L I R. A. And if you file a married joint return, that phase out is from 190,000 to 220,000. The next saving vehicles is the 5 29 college savings plans. Now, contrary to the Coverdale, these have no income phase out. The contribution limits are also higher. There is a max that you can put into most 5 29 plans, but it’s usually in the hundreds of thousands of dollars range. Just like the Coverdale IRA, contributions are not deductible and, if used for qualified expenses, nontaxable when withdrawn. Balance grows that tax free while investing in the plan, even though there are no contribution limits. Contributions to a Section 5 29 plan have gift consequences. You’re gonna want Talk with your advisor about that one. Now we’ve discussed saving for college. But what about when the college phase actually arrives and you’re paying for school? The first opportunity? There is some tax credits. The American Opportunity Credit is available during the students first four years of college. The credit is equal to 100% of the 1st 2000 of college expenses in 25% of the next $2000 of expenses. Thus the value of the credit can be up to $2500 and it is available on a per student basis. Credits usually offset tax liability dollars, but for this, AOC is 40% refundable, meaning. If you didn’t know any taxes, the government will pay you 40% off that amount. Now there are phase out with this is well 80 to $90,000 for single filers and married taxpayers, between 340,000 of adjusted gross income. The second credit is the lifetime learning credit. This credit can be used in situations where a student is beyond the first four years of college. In fact, it would be 60 years old. Go back to school and get the credit. Now the credit is equal to 20% of up to $10,000 of expenses. That’s the maximum credit is $2000. Unlike the A or C, the lifetime learning credit is a per tax return. Crais. This means you can Onley take a credit of $2000 on a tax return, regardless of how many college students you have. This also has a phase out. What lower for single filers. 59,000 to 69,000 and married filers, 118,238 1000. There is an IRS publication 97 that is good to take a look at. And when it relates to these credits. And remember one thing, this is a little bit of a decide. Some people wanna MAX fund their 5 29 plans, but if you qualify for the credit, you can’t use 5 29 plan money to pay for the college to get the credit, so you actually have to take some of your own money and then pay the rest out of the 5 29. Hopefully, this helps. I hope everyone has a wonderful week.
Advice offered by Marc Hebert, president of The Harbor Group Inc., a certified financial planner. If you have any questions about finance or if you’d like to suggest a future topic, email [email protected] we all know, a college degree is expensive. The average cost of an in-state public school degree is $88,000 total. A degree from a private university costs more in the range of $200,000 total. Obtaining a college education can be important to some individuals. Having a degree may offer a more financially secure future and the ability to follow one’s dreams. The cost could be worth it.The federal government recognizes that students attaining a college education not only means greater earnings potential but also higher income taxes. As such, the government uses tax law to encourage college attendance. This article will look at a few ways education is incentivized by our government. The first area college is encouraged is through savings vehicles. Saving money is the first step toward making college attainable. The earlier a family starts saving, the better. One vehicle to consider is a Coverdell IRA. These are also called education IRAs. The maximum contribution is $2,000 per year for beneficiaries under age 18 or with special needs. The contributions aren’t deductible federally but states may allow a deduction. Balances grow tax free and distributions are nontaxable if used for qualified education expenses. Eligibility to contribute to these accounts phases out between $95,000 and $110,000 of income for single filers and $190,000 to $220,000 for married couples. The next savings vehicle is a 529 college savings plan. Contrary to the Coverdell IRA, these have no income phase outs. The contribution limits are also higher. Just like the Coverdell IRA, contributions aren’t deductible and, if used for qualifying expenses, nontaxable when withdrawn. Balances grow tax-free while invested in the plan. Even though there are no contribution limits, contributions to Section 529 plans can have gift tax consequences. Consult your tax preparer or a certified financial planner to properly plan for these. We have discussed saving for college, but what happens when the next phase arrives? There is now a college student in the family. The government has provided some tax benefits to those at this stage as well. The first is the American Opportunity Credit (AOC). The AOC is a tax credit that is available during the student’s first four years of college. The credit is equal to 100% of the first $2,000 of college expenses and 25% of the next $2,000 of expenses. Thus, the value of the credit can be up to $2,500. It is available on a per-student basis. Credits usually offset tax liabilities dollar-for-dollar but the AOC is up to 40% refundable. This means that even if there are no offsetting tax dollars, the taxpayer may receive some of the credit back. If there are excess credits above a 40% refund, the benefit is lost. This credit is phased out for single taxpayers with incomes between $80,000 and $90,000 and married taxpayers between $160,000 and $180,000.The second credit is the lifetime learning credit. This credit can be used in situations in which the student is beyond the first four college years. It can also be taken for expenses incurred to acquire or improve job skills as long as the expenses are considered qualified. The credit is equal to 20% of up to $10,000 of expenses. Thus, the maximum credit is $2,000. Unlike the AOC, the lifetime learning credit is a per tax return credit. This means you can only take a credit of $2,000 on a tax return regardless of how many college students you have. This credit also has a phase out for single filers with income from $59,000 to $69,000 and married filers from $118,000 to $138,000. To learn more about these tax benefits for education, the IRS has Publication 970, Tax Benefits for Education available on the IRS website. If you are considering any of these, it may be a good idea to consult a professional for specifics relating to your situation. There are some nuances that are beyond the scope of this article.
Advice offered by Marc Hebert, president of The Harbor Group Inc., a certified financial planner. If you have any questions about finance or if you’d like to suggest a future topic, email [email protected]
As we all know, a college degree is expensive. The average cost of an in-state public school degree is $88,000 total. A degree from a private university costs more in the range of $200,000 total. Obtaining a college education can be important to some individuals. Having a degree may offer a more financially secure future and the ability to follow one’s dreams. The cost could be worth it.
The federal government recognizes that students attaining a college education not only means greater earnings potential but also higher income taxes. As such, the government uses tax law to encourage college attendance. This article will look at a few ways education is incentivized by our government.
The first area college is encouraged is through savings vehicles. Saving money is the first step toward making college attainable. The earlier a family starts saving, the better.
One vehicle to consider is a Coverdell IRA. These are also called education IRAs. The maximum contribution is $2,000 per year for beneficiaries under age 18 or with special needs. The contributions aren’t deductible federally but states may allow a deduction. Balances grow tax free and distributions are nontaxable if used for qualified education expenses. Eligibility to contribute to these accounts phases out between $95,000 and $110,000 of income for single filers and $190,000 to $220,000 for married couples.
The next savings vehicle is a 529 college savings plan. Contrary to the Coverdell IRA, these have no income phase outs. The contribution limits are also higher. Just like the Coverdell IRA, contributions aren’t deductible and, if used for qualifying expenses, nontaxable when withdrawn. Balances grow tax-free while invested in the plan. Even though there are no contribution limits, contributions to Section 529 plans can have gift tax consequences. Consult your tax preparer or a certified financial planner to properly plan for these.
We have discussed saving for college, but what happens when the next phase arrives? There is now a college student in the family. The government has provided some tax benefits to those at this stage as well.
The first is the American Opportunity Credit (AOC). The AOC is a tax credit that is available during the student’s first four years of college. The credit is equal to 100% of the first $2,000 of college expenses and 25% of the next $2,000 of expenses. Thus, the value of the credit can be up to $2,500. It is available on a per-student basis. Credits usually offset tax liabilities dollar-for-dollar but the AOC is up to 40% refundable. This means that even if there are no offsetting tax dollars, the taxpayer may receive some of the credit back. If there are excess credits above a 40% refund, the benefit is lost. This credit is phased out for single taxpayers with incomes between $80,000 and $90,000 and married taxpayers between $160,000 and $180,000.
The second credit is the lifetime learning credit. This credit can be used in situations in which the student is beyond the first four college years. It can also be taken for expenses incurred to acquire or improve job skills as long as the expenses are considered qualified. The credit is equal to 20% of up to $10,000 of expenses. Thus, the maximum credit is $2,000. Unlike the AOC, the lifetime learning credit is a per tax return credit. This means you can only take a credit of $2,000 on a tax return regardless of how many college students you have. This credit also has a phase out for single filers with income from $59,000 to $69,000 and married filers from $118,000 to $138,000.
To learn more about these tax benefits for education, the IRS has Publication 970, Tax Benefits for Education available on the IRS website. If you are considering any of these, it may be a good idea to consult a professional for specifics relating to your situation. There are some nuances that are beyond the scope of this article.
