Tax Benefits For Education Part Two

Abstract

The past ten years have been a time of great change in the tax treatment of education expenses.  Part I of this research covered the HOPE Scholarship, Lifetime Learning Credits, deductibility of student loan interest, eligibility for tuition deduction, and comparison of credits versus deductions.  This article (Part II) provides an overview of Qualified Tuition Programs which are referred to as Sec. 529 plans.  These plans were authorized by Congress in 1996 and expanded in 2001.  These tax-advantaged savings benefits were set to expire on December 31, 2010. However, Section 1304 in title XIII of the Pension Protection Act of 2006 approved by Congress permanently eliminated the “sunset” provision, thereby making Section 529 plans permanent. This article provides an overview of Section 529 plans as well as Coverdell Education Savings Accounts which are, in essence, IRAs established exclusively for the purpose of paying qualified educational expenses.