Can I use 529 funds to pay my child's college expenses in the same year I take either the Hope credit or the Lifetime Learning credit?
Answer
Yes. You can claim an education credit such as the Hope credit or Lifetime Learning credit in the same year that you withdraw funds from a 529 plan. Your 529 withdrawal will not be free from federal income tax, though, if you apply the 529 withdrawal and one of these education credits against the same qualified higher education expenses.
For purposes of your 529 plan, your qualified higher education expenses are first reduced by expenses used to compute your Hope credit or Lifetime Learning credit. The remaining expenses may be paid with the funds you withdraw from the 529 plan (and you won't pay any federal income taxes on those funds). You will pay federal income tax (and, in most cases, a penalty and maybe some state income taxes) on any part of your 529 plan withdrawal that remains after paying these expenses. From an income tax standpoint, it may be best for you to pay for college expenses with a combination of 529 plan withdrawals, tax credits, and other resources.
You're allowed to waive the Hope credit or Lifetime Learning credit. This waiver may make sense if the value of the education credit is less than the value of federal income tax-free (and penalty-free) withdrawals from your 529 account.
GE 37946 (03/07)
If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan.
529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value and market rise, including loss of principal.
Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement. Please read the official statement carefully before investing.
AXA Equitable does not provide legal or tax advice.
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