HOPE Credits, Lifetime Learning Credits, Coverdell Education Savings Accounts, and 529 College Savings Plans
HOPE Credits, Lifetime Learning Credits
The HOPE Credit ( Not the same as the Georgia HOPE Scholarship) can pay up to $1,500 of the cost of the first two years of a college education. The Lifetime Learning Credit (LL) can pay up to $1,000 of education costs each year. Each student may only use one or the other in a particular year. HOPE pays the first $1,000 you spend, and 50% of the next $1,000. There is a maximum credit of $1,500 per qualifying student in the household. Lifetime Learning pays 20% of the first $5,000 each year to a maximum of $1,000. The LL credit is up to $1,000 for the entire family.
Type of Education
The HOPE credit covers the first two years of a post-secondary program leading to a degree or certificate. A student may use HOPE in only two different tax years, and can't use LL in the same year. LL can be used for any post-secondary classes (even to acquire or improve job skills). It may be used as often as you qualify. Whenever possible, use the two-year HOPE credit first; then switch to the LL credit. If your child qualifies for the Georgia HOPE Scholarship, then you won't be eligible for this credit.
Eligible Expenses
Tuition and fees are the only eligible expenses. Books, supplies, travel, room & board, and other expenses do not qualify.
Who is Eligible?
You, your spouse, or any child claimed as your dependent are eligible for. If the child is your dependent, the money is considered to be paid by you even if it is paid by the child.
Phase Out.
The credits phase out as your (Ajusted Gross Income) AGI ranges from $80,000 to $100,000 ($40,000 to $50,000 for single filers).
Qualifying Education.
Under HOPE, a student must be enrolled at least half-time. The LL credit has no halftime rule even a single class qualifies!
Coverdell Education Savings Accounts ( Formerly known as Education IRA's.)
Beginning in 2002, up to $2000 per year may be contributed to a Coverdell Education Savings Account. However, only one Education Savings Account is allowed for an individual. The contribution is not deductible. The money is completely tax-free when taken out if it is used to pay for the qualifying education of a student. Qualifying education may be elementary or secondary in addition to college. The allowable contribution starts phasing out for couples when their Adjusted Gross Income (AGI) reaches $190,000 and becomes final when the AGI reached $220,000. For single individuals, the phase out range is $95,000 - $110,000.Contributions can be made up until April 15th of the following year.
529 College Savings Plans.
Up to $11,000 may be contributed annually to a 529 College Savings Plan for each beneficiary. The total contribution limit for the life of the plan is currently $250,000. The contribution is not deductible. Unlike the Coverdell Education Savings Account, there is no income limitation or requirements on the person making the contribution (It could be ideal for grandparents who want to help with college expenses and distribute some wealth to avoid estate taxes.) However, like the Coverdell Education Savings Account, when the money is taken out for college education, it is completely tax free.
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