1/2/2024 0 Comments 529 distributions rulesThere is no limit on the number of years you can claim the credit. The Lifetime Learning Credit gives you up to $2,000 a year per return, and it can be applied to undergraduate, graduate, and professional degree courses. There’s no credit if the couple’s income is $180,000 or more. For parents who are married and filing jointly, the credit begins to phase out if they have an income of at least $160,000. Eligibility for the tax credit begins to phase out for single taxpayers with incomes above $80,000, and it cuts off at $90,000. It’s available for the first four years of college. With the AOTC, you get a $2,500 tax credit per eligible student when you spend $4,000 on qualified college costs. Kantrowitz recommends paying up the credit limit on tuition and textbook expenses before using a 529 plan distribution to pay the remaining costs. So plan ahead to avoid disqualifying for a tax credit. “The IRS doesn’t allow double dipping,” says financial aid expert Mark Kantrowitz, former publisher of. But if you use your 529 plan for those expenses, you won’t qualify for a credit. You may be eligible for one of the educational tax credits, the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit, which give you a tax break on college expenses. The legislation also permits 529 money to go toward eligible apprenticeship programs, as well as transfers to an ABLE account, a tax-free savings account designed to benefit children and adults with disabilities. But not every state will recognize elementary and secondary school expenses as qualified education costs, so check with your plan sponsor to find out what exactly is covered in the plan you choose.Īnd since the passage of the SECURE Act in 2019, 529 money can be used to repay up to $10,000 per beneficiary of qualified student loan debt. Your 529 money can also be spent on expenses for K-12 education-up to $10,000 per student each year. If you’re unsure whether an expense qualifies, check with your plan provider. Expenses such as transportation and insurance, for example, are not covered. Not all college-related bills are valid for 529 funds. “You need to be careful about being able to document where your 529 money goes, in case the IRS asks questions,” says financial aid expert Kalman Chany, author of “Paying for College” (The Princeton Review, 2020). Dorm expenses are always covered, but if your child is living off campus, check the college’s “cost of attendance” figures to find out the amount that’s considered qualified for off-campus housing. The money can also go toward expenses for room and board, as long as the student is enrolled in school at least half-time. That includes tuition, fees, books, supplies, and computers. You can use funds from a 529 account for a wide range of qualified education-related expenses. Here’s what you should keep in mind as you prepare to make withdrawals from a 529 college savings account. A mistake could be costly: You could get hit with a 10 percent penalty, plus you’ll have to pay interest on the earnings for any funds that you use for the wrong kinds of expenses. If you have children heading to college this fall and plan to tap 529 funds to pay expenses, it’s important to withdraw the money correctly. A 2021 survey found that even among those who do, 67 percent didn’t know about possible tax benefits and other features of 529 accounts. Only 40 percent of Americans recognize 529 plans as a way to save for college, according to a recent survey by financial services firm Edward D. And though money has continued to flow into these plans-assets stood at $431 billion in the first quarter of 2022, according to ISS Market Intelligence-many families still don’t fully understand how these accounts work. Withdrawing funds from a 529 isn’t as straightforward as it sounds. But they may not be as savvy about how best to take funds out. Parents who’ve been saving for their children’s college expenses for years know that putting money into a tax-advantaged 529 college savings account is easy, once the account has been set up.
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