Educate Thyself, And Save Taxes
The cost of college is rising by about 10% a year -- far
above the rate of inflation. But recent Tax Code changes create
tax-favored ways to save for college and continuing education.
- An Education IRA can be used to pay for future
education costs. You can deposit up to $500 per year for each
child or grandchild under the age of 18. Like the Roth IRA,
contributions aren't tax-deductible, but withdrawals are free from
income tax and capital-gains tax.
- The Taxpayer Relief Act of 1997 created the
Lifetime Learning Credit. The per-family credit is 20% of
tuition, up to a maximum credit of $1,000 per year. That's a credit and not
a deduction, so that $1000 is taken straight off your tax bill! Keep
your eyes open for an interesting college class that you can attend:
it's $1000 worth of free education per year.
- You can deduct up to $2,500 of interest on student loans in 2004.
- The Hope Scholarship Credit is worth up to $1500 towards the first two
years of a college education for anyone in your family.
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Educate Thyself, And Save Taxes 
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Time to complete:
| Requires frequent thinking |
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Money you'll spend:
| Varies |
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What you'll get:
| Thousands of dollars in free education. |
Step-by-step instructions:
There's no way I can
come up with a single plan that fits everyone, so here's a list of things to
think about when planning a college education:
- What is the value of a college education? How do you make sure that
this value is appreciated by the student?
- How can you help a student decide early on what he or she will do in
life, so that minimal time is wasted in changing majors in college?
- How early and how much money would a parent need to save for a student's
education?
- Would some work experience before (or during) college be helpful?
- Would online courses be a worthwhile substitute for some college courses?
- How much can you save on educational costs, by using the allowed tax breaks?
- What expenses should be paid for by parents, and how much should be
paid from the student's own money?
- What other ways are there to limit expenses and control costs?
- What valuable life experiences can the student acquire, in
college or during the summertime?
- Should the student run a part-time business while attending college, or
in the summertime? Who can help the business get started?
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Further Reading:
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