Before making college tuition payments, parents can plan tax-efficient ways to cover university costs. Here’s what to consider before opening your checkbook.
The bigger write-off, the American Opportunity Tax Credit, is 100% of the first $2,000 and 25% of the next $2,000 per student. To claim the full $2,500 credit, families may pay $4,000 of expenses out of pocket and use the 529 for costs above that, he said. Families may receive the credit up to four tax years per student.
"That's the best way to make sure you're getting the most from these 529 distributions," Shagawat added. While the American Opportunity Tax Credit only applies to the first four years of higher education, the Lifetime Learning Credit may pay for undergraduate, graduate or professional degrees. There's a comparison of the twoFamilies with more than one source of money for college may consider their long-term tax plans, said Nolte.tax proposals is unclear, those worried about future tax hikes may choose to sell stocks with gains sooner, he said.
If grandparents set up a 529 plan for their children, families may want to use that money first, in case the owner decides to use it elsewhere, said Nolte.There is one downside of using non-parental 529 money, however. The withdrawals may count as the student's income on next year's Free Application for Federal Student Aid, or FAFSA, which may affect financial aid.
The Consolidated Appropriations Act of 2021 made changes to the FAFSA, simplifying the form and removing this penalty. However, the Department of Education has