<p>D is starting college in a couple of weeks. She has some merit scholarship money from the school which will be applied to each semester's costs, but there is still a chunk we need to pay. I can use nearly 1/4th of the 529 balance to fully pay the remaining first semester costs, and then pay cash spring semester to cover our balance. BUT, I realized that if I did that I won't be able to take the various federal credits that are out there, at least for the 2009 tax year, and that seems foolish. So, I'm trying to figure out how much we need to pay by check (not from the 529 plan) in order to maximize our federal deductions/credits. Our family has an AGI under 100K. I can see at least $2000, but I don't want to miss something else. Any thoughts?</p>
<p>I believe you can get up to a $2,500 credit on the first $4,000 in qualified expenses (100% of the first $2,000 and 25% of the next $2,000), for the Hope Credit. One way you can work it is to pay items allowed in a 529 plan, but not covered by the Hope Credit, with 529 funds. FYI, the Hope Credit is being called the American Opportunity Tax Credit now, just so you don’t think you have two credits available. </p>
<p>Also, I don’t think it makes a big difference how the total bill is paid as long as you can account properly for it (i.e., all 529 funds spent properly).</p>
<p>We spent down monies in the kids UTMA accounts first. Any funds in the student’s name are considered at a higher rate than the parents assets for FAFSA purposes. By spending their money first you are increasing your shot at FA the next year(s).</p>
<p>^^^ The OP has a 529 plan, which is considered a parent asset anyway.</p>