<p>As the parent of a college freshman, after last year's march through the FAFSA, CSS Profile, IDOC etc. I would be so happy never to think about the combination of income tax and college costs ever again. However I just spent an exhilarating evening (of course not) tracking down the details of what has been spent so far in order to figure out whether or not to pull any more money out of the 529 plan this year. I think not, because it appears that we could claim the American Opportunity Tax Credit instead, which looks like a straight reimbursement of at least the first $2,000 in eligible expenses. Happily, we have just over $2,000 in fees and textbook purchases that hasn't been withdrawn from 529. Does this sound plausible?</p>
<p>Yes, assuming of course you are eligible income wise etc.</p>
<p>There is an option of using 529 funds and paying the taxes buy no penalty on any income. But as you have more years to go, I would save the 529 for future years.</p>
<p>Thanks, swimcatsmom.</p>
<p>At present, the American Opportunity Tax Credit will expire 12/31/2012. Nobody knows if it would be extended or not.</p>
<p>Sounds like you are on the right track…definitely take the Opp Credit if you can and hold off on the 529 distribution. Don’t forget though that many colleges bill for the next semester/quarter in late December. If you pay the tuition/fees/room & board then, you can withdraw additional money now. Try to get to the $4000 figure in eligible expenses to maximize your Opp Credit benefits…it’s not easy to swing that out-of-pocket for many families, but it can sure pay off.</p>
<p>I’m not holding my breath about having the Opp Credit available in tax year 2013…</p>
<p>I always pay $2000 out of pocket towards tuition to get the full $2000 credit. It doesn’t make sense for us to pay an additional $2000 for the extra $500 credit, when there is money in the 529 to cover it. Others’ circumstances will be different, of course.</p>
<p>Before the Opportunity Credit, we used the Hope credit, which I think was only good for 2 years and not as large, but still worthwhile. I wonder if that will reappear.</p>
<p>Isn’t the American Opportunity credit ok through tax year 2012 (this year)?</p>
<p>[American</a> Opportunity Tax Credit](<a href=“http://www.irs.gov/uac/American-Opportunity-Tax-Credit]American”>American Opportunity Tax Credit | Internal Revenue Service)</p>
<p>I keep hearing it’s not a guaranteed thing this tax year (even from my tax professor), but the above link seems to say otherwise. I’ll be watching this closely, too!</p>
<p>Yes…as stated above, it will expire 12/31/12 unless it is extended in the "fiscal cliff negotiations for 2013 and beyond.</p>
<p>You get the full credit only if you spend $4K out-of-pocket (not from ESA or 529) – but you also need to make sure it is applied to eligible expenses, which do not (for the tax credit purposes) include room and board. Prepaying January’s tuition bill (or $4K of it) in December is an option.</p>