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Making the Most of Education Tax Benefits

Most four-year college programs extend over five tax years. This can help maximize your credits. To learn more, see the Tax Credits for Higher Education tax tip.

Most credits you can claim over only four years. It pays to know your options beyond the fourth year.

Ex: You can only claim the American Opportunity Credit four times. However, you can claim the Lifetime Learning Credit at any time that you, your spouse, or your dependents are in college.

Not claiming a child as a dependent

The American Opportunity and Lifetime Learning Credits have income phase-outs. If you can't claim one of the credits because of the income limits, you can let your child claim the credit.

Before doing this, consider:

  • Most education credits aren’t refundable, so you don’t benefit from them unless you have a tax liability.
  • The American Opportunity Credit is up to 40% refundable. This credit isn't available to anyone claimed as a dependent. If your child would get a greater benefit from claiming the credit, your child can claim the credit as long as you don't claim the child as a dependent. However, the refundable portion of the credit is usually not available to anyone who's both:
    • Under age 24
    • Doesn't provide more than half of his or her own support
  • If you qualify to claim your child as a dependent but don’t do so, your child can't claim a personal exemption on his or her individual return.

Rollover or change of beneficiary on an education savings account (ESA)

The Coverdell ESA comes with certain requirements. If you don’t comply with these requirements, a 10% penalty will apply to the withdrawal. To avoid a penalty, the funds must be fully withdrawn either:

  • Within 30 days of the death of the beneficiary
  • By the time the beneficiary reaches age 30

If you have money left in an ESA after a child graduates or reaches age 30, you can:

  • Change the ESA’s beneficiary to another family member
  • Roll over ESA funds into an existing account of another family member

The change of beneficiary and rollover will be tax-free if both of these apply:

  • The family member is under age 30.
  • You complete the transaction within 60 days.

The age limitation doesn't apply if the new beneficiary is a special-needs beneficiary. Also, for each Coverdell ESA you have, you can roll over money only once in a 12-month period.

If you’d like to learn more, see the Education Savings Accounts (ESAs) tax tip.

Deadline for contributions to an ESA

You must make your ESA contribution by the time your return is due (usually April 15). Make your contribution as early as possible, though, to take advantage of the account's tax-free earnings.
An advantage of having an ESA is that you can pay educational expenses with tax-free ESA earnings. You also might qualify for one of the other educational tax benefits, like the American Opportunity Credit or the Lifetime Learning Credit. However, you can’t use the same expenses for both tax breaks.

To learn more, see Publication 970: Tax Benefits for Education at

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