Additional “College Savings” Through Federal Tax Breaks
Most families find themselves having to pay some portion of the college costs when the time comes, regardless of how large or small. While parting with those dollars is never easy (even when the investment is well worth it!), there is a silver lining. Over the years, the federal government has established several tax breaks to help ease the college financing burden. Below are the current options you should explore with your accountant when it comes time to fork over the dollars you must pay to earn a degree.
| Type | Description | Sources |
| Tax Credits | Tax credits are direct offsets to the federal income tax total you must pay. These credits offer the biggest “bang for your buck” when it comes to reaping the benefit of paying some college costs out of your own pocket. | American Opportunity Credit Lifetime Learning Credit |
| Tax Deductions | Rather than directly reducing tax liability, tax deductions offset the amount of income used to figure the amount of tax due. While not as “rich” a benefit as a credit, tax deductions can still help offset required out-of-pocket costs. | Student Loan Interest Deduction |
| Other Federal Education Benefits | In order to create an incentive to save for the college years, the federal tax code (and in some cases state tax codes as well) has been refined to allow for several different tax-advantaged savings options. Furthermore, beyond the student loan interest deduction, student loan cancellation and repayment assistance also is available to some students pursuing certain types of employment in fields of high need and/or public service. | To learn more about the current treatment of various college savings vehicles, visit the Insights on Investing section of this site. For more information on all of these federal tax benefits related to higher education, review IRS Publication 970 – Tax Benefits for Education. |
Indiana CollegeChoice 529 Plan
Indiana taxpayers who contribute to a CollegeChoice 529 account are eligible for a 20% state income tax credit up to $1000 on their contributions. This extra money in your pocket can be used to pay for expenses at any college of your choice!
Click here for more details on the Indiana 529 Plan
Remember!
For each student, you can elect only one of the credits for any given tax year. For example, if you elect to take the Lifetime Learning Credit for a child on your tax return, you cannot, for that same child, also claim the American Opportunity Credit. Be sure you understand which credits you may be eligible for and which will offer you the greatest tax relief!