There are many different ways to use tax breaks for the higher education of your children. Be aware that you can only receive one type of relief for one item. It is best to consult with a professional to determine which would be the most advantageous.
You must make a choice between two types of tax education credit.
- The American Opportunity Tax Credit will work for the first 4 years of college for at least full-time study.
- The Lifetime Learning Credit applies for as long as the student studies, but the percentage of savings per year decreases drastically.
An education IRA is different than a standard IRA in these ways:
- Withdrawals aren't taxed if used for qualified education expenses.
- Contributions can be made only up until the point that the client reaches 18, and all funds must be distributed by the time that they are 30.
- Contributions are not tax deductible.
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