<p>I am wondering if there are any particular advantages or disadvantages to paying tuition in December versus January. </p>
<p>DS's school bills in early December and the bill is due in early January, so we have the option to pay on either side of the year-end boundary.</p>
<p>DS has some financial aid which includes grant aid. Is it important to find out whether his spring aid will show up on his 1098-T (and then pay tuition the same tax year)? I know not all schools do it the same way. </p>
<p>Even with the fall grant aid, we paid more than enough toward just tuition during Fall semester to qualify for the full AOG. So it seems like it wouldn't matter (or that we should "save" the spring tuition for next year on the off chance that he earns additional scholarships for sophomore year that might reduce our AOG eligibility). </p>
<p>Question: can the AOG be claimed in 5 tax years for a single student, as long as the payments being claimed are only for the first 4 years of the student's education? (I assume not, but if so that would be a good reason to pay spring tuition in January at least in the student's senior year.)</p>
<p>If you have already paid $4000 of eligible expanses, I can’t think of any tax benefit to paying Spring expenses early.</p>
<p>AOC can only be claimed for a total 4 years. Currently it has only been extended through 2012. Hopefully it will be further extended. If not, it will presumably revert back to being the Hope credit which was for 2 years of school only.</p>
<p>I think it is. D1 had tuition charged and FA given offset in different years because of the school’s accounting method, which was a real pain, if this is avoidable, it would be worth it IMO.</p>
<p>We also paid some (very little) of his expenses with 529 withdrawals. But we still have over $4K in qualified expenses paid beyond what we withdrew from the 529. So it sounds like we can/should wait until January to pay.</p>
<p>What about the question of the 1098-T? If they credit his grants for spring in 2010 that would disqualify us for AOC in 2010, unless we are allowed to wait and claim the grant income in the same year we pay the tuition. So maybe I need to call the bursar’s office and ask about that?</p>
<p>You can’t claim the AOC for expenses paid with 529 account money if you claim the tax benefit for the 529 account withdrawal. However, I believe there is some wording in IRS 970 about paying the taxes and penalties on the 529 account withdrawal allowing you to then use those payments to claim the AOC.</p>
<p>Arutha – I <em>think</em> but am not 100% sure that you can keep your own records and file your taxes accordingly, despite what your college puts on the 1098-T, but this is a pain at the very least, and may be an audit flag.</p>
<p>Also, if the qualified expenses are paid using 529, can the parent still claim AOC?
As long as you pay $4000 of qualified expenses using an acct other than from the 529.
( you can’t double dip on tax breaks)</p>
<p>There is not a federal tax break on 529 account contributions (often there is a State tax break). But there is a tax break on qualified distributions. The part of 529 account distributions that are earnings are taxable and carry a tax penalty of 10% if they are used for anything other than qualified education expenses. If they are used for QEEs they are not taxable and there is no tax penalty.</p>
<p>Also, Arutha and others, keep in mind that textbooks count as a qualified educational expense, so make sure you keep track of that and add it to your QEE total if you are short on QEE to “cover” 529 and/or scholarship/grant money (and leave you enough for the tax credit). They won’t show up on your 1098 in most cases, but you can still add it if you keep good records.</p>
<p>ic. what if there was no earnings? In other words whatever I withdrew was just my contributions. Am I eligible then? I started contributing late and the account is currently at a loss. So I can assure there was no earning whatsoever.</p>
<p>swimcatsmom – is the penalty on the whole withdrawal, or only the earnings? I think it’s the latter, and if the money didn’t earn much, it may well be worth “allocating” 4K the withdrawn 529 funds toward room and board, paying the small amount of tax and penalty on the small amount of earnings, and getting the AOC tax credit. (Do the math both ways and talk to a tax professional if you’re not sure.)</p>
<p>Arutha, I <em>believe</em> that in that case you are ok. But you might need to check with a tax professional. Or maybe someone at your 529 plan can advise you.</p>
<p>Thanks. I just read the tax publication 970 (and example calculations) and I don’t think I will be taking a double dip and I can still claim AOC.</p>
<p>There’s also the “tuition and fees” deduction which looks like it may be better for most taxpayers whose joint MAGI is under $130K, unless I’m missing something.</p>
<p>Yes, there is (MAGI limit is $160K btw). But one can only claim one or the other. For people in lower tax brackets (like me), AOC may be better.</p>