Don’t Forget to Ask What Uncle Sam Can Do for You?
Going back to school in your 30s, 40s and 50s has its own set of challenges. For instance, it’s going to be a lot tougher to pull the all-nighters you did when you were 18. It will also be an eye-opener to encounter tuition prices that have increased at twice the rate of inflation over the last 20 years.
According to the College Board, the average current yearly in-state costs at public universities are $13,589 and $32,307 for a private college.
Planning a mid-career return to college should make you feel like an 18-year-old for one important reason: You can and should compete for the same tax credits, grants and scholarships that the kids do, and don’t miss the breaks available to the older set.
If you’re pursuing undergraduate or vocational study: Consider the federal Hope tax credit, which allows a tax credit for the first two years of post-secondary education. For tax year 2008, the maximum Hope Credit has been increased from $1,650 to $1,800. Who’s eligible? An eligible taxpayer is enrolled in one or more courses at an eligible college or university, must file a federal tax return and owe taxes to claim the Hope credit – that means you can be eligible for the tax credit if you are a student or if your spouse or child is a student. The Hope tax is a nonrefundable credit.
If you’re pursuing graduate school or upgrading your skills: Check out the Lifetime Learning Credit, which applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills. The amount is per family, not per student, and translates to a maximum credit of $2,000 – not much, but it’s better than nothing. The credit is equal to the first 20 percent of $10,000 spent out-of-pocket on qualified tuition and related expenses. The credit may be claimed by the parent or the student, but not by both. Nor can the Lifetime Learning Credit be combined with the Hope Credit. For single individuals, the credit starts to phase out when their modified adjusted gross income reaches $48,000 for 2008 (up $1,000 from 2007) and is completely phased out when the adjusted gross income is $58,000 for 2008 (up $1,000 from 2007). Married couples who file jointly start to lose the credit when their modified adjusted gross income reaches $96,000 for 2008 (up $2,000 from 2007) and completely lose the credit when their adjusted gross income reaches $116,000 in 2008 (up $2,000 from 2007). Like the Hope Credit, the Lifetime Learning Credit is a nonrefundable credit.
Tuition and fees deduction: The IRS allows deductions of up to $4,000 on tuition and fees (even when you borrow to pay them) as long as you do not file your tax return as “married filing separately” or if your modified adjusted gross income is more than $80,000 if single or $160,000 if you’re filing a joint return. But there’s bad news, too. If you took a Hope or Lifetime Learning Credit for yourself, you won’t qualify for this deduction.
Interest on student loans: In 2008, you will be able to deduct up to $2,500 of interest on student loans. Taxpayers with a modified adjusted gross income over $70,000 for individual filers or $140,000 for joint filers don't qualify for the deduction. There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan.
Know which scholarships and grants are tax-free: You generally need to be a degree candidate – not someone who’s taking a course or two to brush up on your skills.
Beyond federal tax breaks, make sure you investigate:
· Whether the particular coursework you’re planning will give you the best possible return in terms of pay or new career choices.
· Any tax breaks on the state level.
· Whether investing funds in a 529 college savings plan makes sense for you.
· Any scholarship or education subsidies offered by your employer.
· Any scholarships or grants offered by industry or trade groups.
June 2008 — This column is produced by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.
