The rising cost of college has become a worry for many parents looking to send their teens onto higher education institutions after high school. As tuition and the cost of living increases, parents scramble to find ways to afford the school of their child’s dreams. This need has not escaped the government’s attention and luckily, cost-conscious parents can take advantage of a wide variety of tax credits and deductions provided by the IRS.
College can easily cost hundreds of thousands of dollars, and it’s never too early to start saving for your child’s college tuition, whether they end up going to a local two-year school or attending a private four-year university.
Ever heard of the 529 College Savings Plan? This tax advantage account helps pay for qualified higher education expenses, and can be used for students of any age. It allows annual gift tax free transfers of up to $70,000 per year per beneficiary, and can be managed by a professional fund manager. In contrast, a Coverdell Education Savings Account (formerly known as the Educational IRA) offers tax-deferred growth so long as the funds are spent on a child’s educational expenditures. This has a much lower annual contribution maximum, at $2,000 per year, but allows for flexibility as the account owner can choose their investments.
Beyond personal savings plans, there are numerous government tax breaks and credits available for those looking to afford a college education. From the Lifetime Learning Credit to the American Opportunity Tax Credit, there are a bevy of options to select from, and understanding the ways your taxes can help you pay tuition is essential. Check out the helpful infographic below, put together by Community Tax, for tips on paying for college with the government’s help, and learn how the right tax credits and breaks can help you fund a college education, whether it’s for yourself or your child.