Tax Breaks

Benefit From Your 529 Plan and the American Opportunity Tax Credit in the Same Year

If you plan carefully, you can double up on these ways to cover college costs.

Can I use 529 money to pay college tuition and also claim the American Opportunity tax credit in the same year? --R.H., Paintsville, Ky.

Yes, if you plan carefully. The American Opportunity credit can be worth up to $2,500 per student for each of the first four years of college. It is calculated as 100% of the first $2,000 in eligible expenses (tuition and fees) for each student, plus 25% of the next $2,000. You can’t double-dip tax breaks—that is, claim the credit for the same expenses you paid with tax-free money from your 529 plan—so it’s best to pay at least $4,000 of tuition charges from money outside of your 529. Then you can use the 529 money tax-free for the remaining tuition and fees, plus other eligible expenses, such as room and board, books, and a computer and Internet access.

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