Be sure you get the tax advantages you deserve.

If you have a child entering college soon, the thought of paying the tuition bills might wear you out. So a reminder that you also need to pay taxes as well during these four years might seem like piling on. But you might be rewarded if you take this opportunity to bone up on some of the newer tax code regulations regarding paying for college education.

Tax Credits

There are two new credits that were enacted as part of the 1997 Taxpayer Relief Act. The first is the Hope Scholarship. It offers a tax credit of up to $1,500 per year for the first two taxable years that your child is in college.

The second is the Lifetime Learning Credit. This one kicks in when the Hope Scholarship runs out. It can be used any year for an unlimited number of years and provides a 20% credit on the first $10,000 of qualified expenses. This credit also applies for educational expenses to acquire new or additional job skills.

The top limit on these credits phase out if your joint filing income is between $85,000 to $105,000 and from $42,000 to $52,000 for single filers. Also you cannot claim these credits if you use an education IRA distribution to pay for the college expenses that year.

The Education IRA

Another way to get some tax advantages is to set up an Education IRA. MCU offers these as well as traditional IRAs. The Education IRA allows you to put $500 a year for each child into a special education account that you can withdraw tax-free when your child enters college. So you can benefit from both tax-free growth as well as tax-free withdrawals. It’s a great way to build amounts quickly over the years before your child heads off to college.

Working with IRAs can be confusing. Contact MCU at 847-342-9300, and we'll walk you through the process - and determine which plan is right for you.

© MCU 2009. All Rights Reserved.