<p>Because a 1098-T is generated. It includes amounts billed for tuition and fees AND amounts of grants and scholarships (not loans). The IRS knows what came from a 529 because the 529 generates a 1099-Q. </p>
<p>Only the earnings portion of the 529 would be taxable, and even then only if if we’re used for non-qualified expenses. </p>
<p>
</p>
<p>Since money from a 529 is tax advantaged money, you may not claim the AOE credit for expenses paid with a 529. However, there are ways to use both. For instance, you can pay for room and board with 529 money and pay tuition and books out of pocket and claim the AOE credit for those expenses. D’s tuition is covered by employer benefit. I pay room and board out of 529 money, leaving course fees and books to pay out of pocket. I don’t get the full AOE as those expenses do not equal $4000, but I do get some.</p>
<p>Thank you for the info, was not aware a 1098 was issued by the college - obviously I’m a first year parent. I think I messed up for 1st semester payment. But, I will pay at least $4,000 out of pocket for tuition in December and hope that qualifies us for the tax credit. Hope that the 2nd semester tuition shows up on the 2013 1098 that is issued.</p>
<p>Another thought. You can only claim4years of the tax credit per student, but your student will be in college for at least part of 5 calendar years. You have a little wiggle room.</p>
<p>We used the money after rolling S’s account to D in her 4th year. It paid much of one term of tuition, which we charged to my credit card and made a payment from the account, keeping a copy of the check and statement, which we gave to CPA doing the taxes. Worked fine for us!</p>
<p>Thank you so much. From what I understand you are saying, if I miss the tax credit in 2013, I can take 2014, 2015, 2016 and then final tax credit in 2017 when paying the last semester of college - making sure not to pay final semester until January 2017. Let’s hope she stays in college :)</p>
<p>That sounds like a good plan. Wait and see when the next semester tuition is due - my older kids had tuition due in mid-January, so I paid it in January, but for my youngest it looks like it will be due Jan 2, so it will be billed and paid in December.</p>