CCH Financial Planning Toolkit | Tax Breaks for Education

Tuesday, October 14, 2008

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Tax Breaks for Education

As of 1998, a new group of tax benefits has become available to those who are pursuing higher education for themselves, their spouse, or their dependents.

In this section we'll describe the similarities and differences between:

In most cases you have to choose among these benefits, since the same student is not permitted to use two different education tax breaks in the same year.

Save Money

For each student, in any given year you can only take advantage of one of the following: Hope Scholarship credit, Lifetime Learning credit, or withdrawal from an education IRA.

For those who qualify, the Hope Scholarship credit will generally save you the most tax money. If you don't qualify, the Lifetime Learning Credit is generally the next-best tax break. Since education IRAs (renamed to Coverdell education savings accounts) only became available in 1998, they are unlikely to help current students; however they can be a useful way to start an education fund for a new baby or young child. For those who have recently graduated, the student-loan interest deduction provides a measure of relief.

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