<p>Both my kids have 529 plans. My S is a freshman at college. My D will matriculate in college this fall. My D will have a grant and scholarships to cover tuition, books, plus some extras. We will basically pay for room and board. So, for tax planning, I understand that she will be taxed on money she receives over and above tuition, books and fees. I also understand that room and board are eligible college expenses for 529 plans, but not for federal tax purposes. Therefore, am I correct that her expenses for the following year can all flow through the 529 plans since there is no qualified college expenses for federal tax purposes? Also, for my son who is full pay, am I correct that $4,000 of his tuition and books should come from the checking account (or savings that are not the 529 account) to take advantage of the federal tax breaks?</p>
<p>GTalum, I believe you are correct in all your assumptions.</p>
<p>GTalum –</p>
<p>You may be luckier than that. At some schools, while the scholarship amount may be based on tuition, books and some extras, you can actually apply it where you like – so $4000 towards room and board so that your personal payment of $4000 towards her tuition can qualify for the tax credit.</p>
<p>Thanks for the confirmation.</p>
<p>arabrab, if I applied the scholarship to room and board (which I think I can do) it would then need to be reported as income and somewhat negating the tax benefit. But it would be her income, not mine. Looks like she might have to pay taxes this year.</p>
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True. But getting a credit of $2,500 for $4,000 of tuition more than makes up for paying tax on $4,000 especially since it’s at the student’s rate. And if that’s all the income the student has, it may not be taxable at all. Scholarship income is taxed as earned income and the standard deduction on earned income is $5,700.</p>
<p>^^^Thanks. Guess it depends on how much her summer job will pay.</p>
<p>Unless she’s making really big bucks, she won’t owe a lot of tax on summer earnings. Certainly nothing much at all compared to the size of the tax credit you could get, unless she’s getting one of those $30K summer internships some of the law firms offer law students.</p>
<p>I didn’t think your child could take the tax credit for themselves unless they were not being claimed as a dependent on their parent’s tax return.</p>
<p>How would that even work for a kid who is making, say $1500 at a summer job? Hardly any taxes are taken out, so any tuition tax credit would exceed the taxes owed. It doesn’t make sense to me. That’s why I think the kid would have to be their own head of household to take the tax credit themselves.</p>
<p>Our AGI is above the limit for taking this credit, so if there really is a way for the kid to take the credit based on their own small income, I would be very interested.</p>
<p>I don’t believe anyone is suggesting the student could/should take the credit.</p>