Benefit From 529 Plan and American Opportunity Credit

College student thoughtful in study room

(Image credit: Getty Images/iStockphoto)

published 1 April 2016

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.

10 Best Values in U.S. Colleges, 2016

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.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png

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.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.