My son will be starting college this fall, and we’ll be paying his first tuition bill this summer. We have money in his 529 plan and will need to use some cash from our regular bank account, too. Which account should we withdraw from first?
DOWNLOAD: Smart Ways to Save for College
Before you tap the 529 account for this semester’s tuition bill, see whether you can take advantage of the American Opportunity tax credit, which provides a tax credit of up to $2,500 each year for eligible college costs. You can’t double-dip on tax breaks -- that is, use a tax-free distribution from a 529 or Coverdell education saving account to cover the same expenses for which you claim the tax credit -- so you may not be able to qualify for the credit if you pay all of the bills from the 529.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
To qualify for the American Opportunity tax credit, your adjusted gross income must be less than $90,000 if you are single, or $180,000 if you’re married filing jointly (the size of the credit starts to phase out at $80,000 for singles and $160,000 for couples filing jointly). Money you spend on tuition, fees and books in the first four years of college can count toward the credit.
The credit is worth 100% of the first $2,000 you pay for eligible expenses, plus 25% of the next $2,000 of eligible expenses. So, you could pay at least $4,000 of the tuition bill from your bank account, then use the 529 for any remaining portion of the tuition bill, plus room and board (room and board qualifies for 529 money but not for the American Opportunity credit). For details, see IRS Publication 970 Tax Benefits for Education. Also see my column about Tax Breaks and Credits for College Costs.
-
Ford Bets on a "Model T Moment" with $30K Electric PickupA sleek new Universal EV platform promises affordable, efficient electric pickups. Ford’s bet on streamlined manufacturing to deliver both value and profit.
-
Bullish, Deere and dLocal: Thursday's Biggest MoversBLSH stock is continuing its post-IPO climb, while Deere and dLocal are swinging post-earnings.
-
How the 2025 Child Tax Credit Rules Impact Single ParentsTax Credits New changes to family tax credits, like the Child Tax Credit, will impact the eligibility of some households.
-
How Your 2025 Summer Wedding Could Save You Money on TaxesTax Breaks There are some wedding expenses that are tax-deductible, and you don’t want to miss out on savings.
-
Ask the Editor, August 8: Tax Questions on Roth IRA ConversionsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on converting a traditional IRA to a Roth IRA.
-
Retirees Should Watch These Four Key Tax Changes in 2025Tax Changes This year brings key tax changes that could affect your retirement taxes and income.
-
Ask the Editor, August 1: Tax Questions on Standard DeductionsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on claiming standard deductions on your tax return.
-
Tariff Stimulus Checks Coming? New Proposal Seeks Tax Rebates for US WorkersTax Breaks A new GOP bill proposes to send $600 in tariff rebate checks to eligible taxpayers. Is there a catch?
-
Biggest Winners and Losers in Trump's New Tax PlanTax Law Trump’s mega tax overhaul, known as the ‘One Big Beautiful Bill,’ has distinct winners and losers. Which group do you fall into?
-
Ask the Editor, July 25: Questions on Four New Tax DeductionsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on four new tax deductions in the "One Big Beautiful Bill."
