The American Taxpayer Relief Act of 2012 created some good news for families paying for, or saving for, college.
Congress and the White House agreed that higher education should remain a priority for American families and have decided to leave in place the tax benefits that have eased the pain of college spending for students and their families over the past several years. To make sure you are taking maximum advantage of the tax benefits available for funding a college education, you may wish to consult with a Certified Financial Planner to ensure that you receive every possible benefit from the recent agreement to extend these benefits to American families.
Education tax breaks extended or made permanent
- The American Opportunity Tax Credit, which helps defray undergraduate college education expenses by allowing borrowers to deduct up to $2,500 was scheduled to expire last year, but has been extended for five years, through the end of 2017.
- The Tuition and Fees Deduction, which allows taxpayers to claim up to $4,000 in tuition expenses, has also been extended. The deduction, which expired at the end of 2011, was retroactively revived for 2012 and will continue through the end of 2013.
- Some changes to the Coverdell Education Savings Accounts have been made permanent. The annual contribution limit continues to be $2,000 and that the account may be used for elementary and secondary school expenses. Higher income phase-outs have also been made permanent.
- The deal permanently repeals a five-year limit for deducting up to $2,500 via the Student Loan Interest Deduction.
- Tax-advantaged education savings accounts – Coverdell Education Savings Accounts and 529 College Savings Plans – have now become even more attractive with higher income tax rates, deduction phase-outs, and the new Medicare tax on investment earnings.
While this news is relatively good however, it wouldn’t be DC if the news was all good. Higher income earners will not benefit from some of these programs, so financial planning for college should remain a priority in 2013 – along with tax planning strategies to shift income and tax benefits to your college student (when parent income is too high). In addition, a decision on funding levels for federal financial aid has been pushed out to March 1, 2013 so we could see reductions in some aid programs.
As part of your comprehensive financial planning, with a certified finance planner, you financial planning for college can be greatly simplified. Tamarind Financial Planning is here for you, with individual financial planning strategies and personal investment management techniques to help you set, meet, and exceed your financial – and life – goals.