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Highlights of Tax Benefits for Higher Education

Do not rely on this chart alone.
It provides only highlights of some of the differences among the benefits.

Caution: No double benefits are allowed.

  Hope Credit (Education Credit) Lifetime Learning Credit (Education Credit) Education IRA Traditional and Roth IRAs Interest Paid on Student Loans
What is your benefit? Tax credit (nonrefundable) Tax credit (nonrefundable) Withdrawals are tax free No 10% additional tax on early withdrawal Deduction to arrive at adjusted gross income
What is the annual limit? Up to $1,500 per student

100% of first $1,000

50% of next $1,000

Up to $1,000 per family

20% of tuition, up to $5,000

$500 contribution per child under 18 Amount of qualifying expenses 1998: $1,000

1999: $1,500

2000: $2,000

2001: $2,500

What expenses qualify besides tuition and required enrollment fees? N/A N/A Books, supplies, equipment; room & board if at least half-time attendance; payments to qualified state tuition program Books, supplies, equipment; room & board if at least half-time attendance Books, supplies, equipment; room & board; transportation; other necessary expenses
What education qualifies? First 2 years of undergraduate All undergraduate and graduate levels All undergraduate and graduate levels All undergraduate and graduate levels All undergraduate and graduate levels
What other conditions apply? Can be claimed only for 2 years; must be enrolled at least half-time in a degree program Applies to expenses paid and for school attendance after June 30, 1998 Contributions not deductible; cannot also contribute to qualified state tuition program or claim an education credit; must withdraw assets at age 30 Must receive entire balance or begin receiving withdrawals by April 1 of year following year in which age 70 is reached Applies to the first 60 months' interest; must be enrolled at least half-time in a degree program
At what income range do benefits phase out? $40,000 - $50,000

$80,000 - $100,000 for joint returns

$40,000 - $50,000

$80,000 - $100,000 for joint returns

$95,000 - $110,000

$150,000 - $160,000 for joint returns

N/A $40,000 - $55,000

$60,000 - $75,000 for joint returns

Source: IRS Pub 970 (Dec 1998)

 

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Copyright 2006 Connie Buskohl, CPA PC
Last modified: January 19, 2006