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Highlights of 2008 Tax Changes
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Taxpayers can contribute up to
$2,000 in 2008 per account to pay the educational expenses of
a designated beneficiary who is under age 18. A phase-out begins
at modified AGI of $190,000-MFJ ($95,000-Single).
If the distribution exceeds qualified expenses, a portion of the
distribution will be taxable if the distribution are more than
the beneficiary's adjusted qualified education expenses for the
year, and that amount may also be subject to the 10% early distribution
penalty.
In addition, you may now make early withdrawals from traditional
and Roth IRAs without tax penalty to pay for qualified higher
education expenses.
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For 2008 and 2009, an above-the-line
deduction of up to $4,000 for higher education tuition is allowed
for taxpayers with AGI under $160,000 for MFJ ($80,000 for Single).
Tuition costs may be deducted for the costs incurred by the taxpayer,
their spouse or a dependent.
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For 2008, up to $2,500 of loan
interest on qualified education loans for college tuition, books
and supplies.
To qualify for the deduction, your modified AGI on a joint return
is between $115,000 and $145,000. ($55,000 and $70,000 for single
filer).
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Individuals may open a special
higher education savings account and benefit from states and federal
tax incentives. The account owner must designate a single beneficiary
for each account. They may also contribute $60,000 ($120,000 MFJ)
in one year and have use the $12,000 ($24,000 MFJ) gift tax exclusion
over the next 5 years.
Investment earnings on 529 college savings plan accumulate federal
income tax deferred until the money is withdrawn. State income
tax treatment on contributions may vary. The account beneficiary
can use the funds to pay for tuition, room and board, fees, books,
supplies and equipment required for enrollment or attendance.
Distributions used to pay qualified higher educational expenses
will not be taxable.
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