“Easy Ways to Save on College Costs”

1. Parents and grandparents can take advantage of tuition tax credits, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), to help with college expenses.

2. Scholarships used for tuition, fees, books, and supplies are exempt from income tax, but may impact the amount of education tax credits that can be claimed.

3. If an employer pays for the child’s college expenses, it is considered a taxable fringe benefit unless it is part of a scholarship program that is “outside of the pattern of employment.” – Direct tuition payments by grandparents to an educational institution for their grandchildren are excluded from gift tax, with no limit.
– Withdrawals from an IRA or Roth IRA for college expenses are not subject to the 10% early withdrawal penalty, but are still subject to regular tax rules.
– Borrowing against an employer retirement plan or taking withdrawals from it for college expenses may have tax implications and potential penalties.
– It is important to plan ahead and consider the impact of using multiple breaks for college expenses. Consult a professional for personalized advice.

Tax-Saving Ways to Help Pay for College — Once Your Child Starts Attending