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College-Related Federal Tax Benefits

The U.S. Internal Revenue Service offers the following credits, deductions, and other tax benefits to families with individuals enrolled in, saving for, or paying off college:

American Opportunity Tax Credit

Credits 100% of a student's first $2,500 in tuition, fees, and course materials and 25% of the next $2,000. To check eligibility go to www.textbookaid.org.

Hope credit

Up to $2,500/yr. for first four years of college, including expenditures for course materials

Lifetime Learning credit

Up to $2,000/yr.

Student loan interest deduction

Up to $2,500/yr. for life of loan

Student loan cancellations and repayment assistance

Some loan forgiveness programs have tax-free status, so the IRS won't count the loan forgiveness award as taxable income.

Coverdell Education Savings Account (ESA)

Can contribute up to $2,000/yr. until the age of 18

Qualified Tuition Programs ("529 plans")

Can contribute up to the amount of qualified education expenses

Education Exception to Additional Tax on Early IRA Distributions

Can take a distribution from your IRA before age 59 1/2 without having to pay 10% penalty if money is used for qualified education expenses

Education savings bond program

Qualified U.S. savings bonds can be cashed without including the interest from the bonds as taxable income if the bond is used to pay for qualified education expenses

Employer-provided educational assistance

Employers can exclude up to $5,250 of the educational assistance each year from the employee's taxable income

For more information about these tax benefits, review the IRS's most recent Publication 970: Tax Benefits for Education at IRS.gov.

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