Combining Education Tax Benefits?

If you are thinking of going back to school but dread the prospect of having no income for 2-5 years, I have at least two reasons to look forward to returning to the classroom.

  1. Previously MUYF has discussed the value of investing in qualified tuition plans to pay for further studies.  Also known as 529 plans, your contributions grow tax-free and can be used to pay for any college, university, vocational school, or other postsecondary educational institution.  The list of qualified education expenses under 529 is pretty broad and includes money used for books, room and board, and transportation.  But for the money you did use to pay for tuition or any required education expenses, you can also claim it back through the lifetime learning credit.  This is a pretty nice combo: your money grew tax-free and you get to claim it back as a dollar for dollar reduction on your total tax.
  2. If you had to take out a loan, you can still claim the lifetime learning credit for the amount of the loan that went towards tuition or any required education expenses.  This is not as good a deal as #1, but think of it this way: you are already getting a tax break and you haven’t even started repaying the loan yet.  And when it’s time to repay the loan, any interest you have paid are tax deductible.

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