If you are a parent with college-bound children (or your children are already college age,) there are approaches that seek to take maximum advantage of tax benefits to minimize your expenses.
Here are a few of these saving opportunities:
Education Credits: Education credits are available for qualified tuition and/or related expenses. You can take an American Opportunity Credit of up to $2,500 or a Lifetime Learning Credit of up to $2,000. The American Opportunity Credit is 40% refundable, which means you can get a refund if the amount of the credit is greater than your tax liability. Both credits are phased out for higher-income taxpayers.
Qualified Tuition Programs (Section 529 Plans): Parents and grandparents saving for college ahead of time have an opportunity to put money aside in a tax-advantaged plan. Section 529 plans have many advantages:
- Qualified withdrawals are free from federal tax, and the earnings are allowed to grow tax-free
- Ohio allows a deduction from income for contributions made to the Ohio College Advantage 529 Savings Plan of up to $2,000 per beneficiary
- Grandparents can contribute, which benefits them by reducing their taxable estates
- The designated beneficiary of an account can be changed to another member of the family if necessary
Series EE U.S. savings bonds: Series EE U.S. savings bonds offer tax-savings opportunities when used to finance your child’s college expenses. First, you don’t have to report the interest on the bonds for federal tax purposes until the bonds are actually cashed in, and second, interest on qualified Series EE bonds may be exempt from federal tax if the bond proceeds are used for qualified education expenses.
FAFSA (Free Application For Student Aid): Federal Student Aid is responsible for managing the student financial assistance programs. For Ohio residents, the Federal deadline for the FAFSA application is June 30, 2017. However, many colleges have an earlier deadline, so it’s important to ask college admissions representatives or check your target colleges’ websites to find that information. A big change is that students are now able to submit a FAFSA earlier for 2017-18. Students have been able to file a 2017-18 FAFSA since October 1, 2016 rather than beginning on January 1, 2017. Beginning with the 2017-18 FAFSA, students (and parents) are required to report 2015 income information rather than 2016 income information.