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What your education tax benefits may look like in 2018
http://www.savingforcollege.com/articles/what-your-education-tax-benefits-may-look-like-in-2018

Posted: 2017-11-15

by Kathryn Flynn

The IRS recently announced a number of federal tax updates for 2018, which would affect some education related benefits. These changes apply to next year's earnings, which we be reported on the tax return you file in 2019. Keep in mind that these are based on current law, and we could see additional changes pending the approval of the GOP tax reform bill.

2018 estate tax exclusion amount

  • The exclusion amount for estates is $5.6 million, up from $5.49 million in 2017.
    • Note: The Tax Cuts and Jobs Act, released earlier this month, proposes phasing out the estate tax over the next six years so that it will be eliminated completely by 2024.

2018 annual gift tax exclusion amount

  • For 2018, the annual gift tax exclusion is $15,000, up from $14,000 in 2017.

2018 Roth IRA income limits

  • The Roth IRA income phase out is raised to $120,000- $135,000 for individuals, and $189,000-$199,000 for married couples filing jointly.
    • o The phase out for married individuals who file a separate return remains unchanged at $0-$10,000.

2018 Lifetime Learning Credit income limits

  • Gross income in excess of $57,000 ($114,000 if married and filing jointly) is used to determine the amount of Lifetime Learning Credit, up from $56,000 and $112,000 in 2017.
    • Note: The Tax Cuts and Jobs Act, released earlier this month, proposes eliminating the Lifetime Learning Credit.

What this means for college savers:

529 college savings plans

For most families, 529 plans are the best way to save for college. But did you know 529s can also be used as an estate planning vehicle? 529 plan contributions are treated as completed gifts and will be removed from your taxable estate. This is a popular strategy among grandparents, especially since the gifts are revocable. In 2018, 529 plan contributions, combined with all other gifts that year to the same beneficiary, of up to $15,000 (the annual exclusion amount), will not count against your lifetime exemption.

Grandparents (or anyone) looking to give a larger amount in 2018 can gift up to $75,000 if they elect to treat the contribution as if it were made over a five-calendar year period for gift tax purposes.

RELATED: Are there gift and estate tax benefits for 529 plans?

Roth IRAs

A Roth IRA is a popular college savings vehicle for a couple of reasons. Families are able to contribute up to $5,500 per year in after-tax dollars that will grow tax-free as long as the funds are held until retirement. If you take an early distribution (before age 59 ), you'll get hit with a 10% penalty on the earnings, unless the money is used to pay for qualified education expenses. What's more, you can withdraw your contributions (the money you put in) at any time penalty-free.

But depending on your income you may not be eligible to participate in a Roth IRA. Higher income limits in 2018 mean more families will be able to take advantage of their benefits.

Lifetime Learning Credit

The Lifetime Learning Credit is a tax credit for 20% of up to $10,000 (totaling $2,000) in combined college tuition and mandatory fees for a parent, spouse and their children in a given year. In 2018, raised income limits will make the credit available to more families.

It's important to note that there is no double-dipping allowed, which means the expenses used to generate the Lifetime Learning Credit can't be included in your total 529 qualified expenses. You're also ineligible to claim the Lifetime Learning Credit if you are claiming the American Opportunity Tax Credit (AOTC).

RELATED: Federal tax incentives targeted to education

The IRS recently announced a number of federal tax updates for 2018, which would affect some education related benefits. These changes apply to next year's earnings, which we be reported on the tax return you file in 2019. Keep in mind that these are based on current law, and we could see additional changes pending the approval of the GOP tax reform bill.

2018 estate tax exclusion amount

  • The exclusion amount for estates is $5.6 million, up from $5.49 million in 2017.
    • Note: The Tax Cuts and Jobs Act, released earlier this month, proposes phasing out the estate tax over the next six years so that it will be eliminated completely by 2024.

2018 annual gift tax exclusion amount

  • For 2018, the annual gift tax exclusion is $15,000, up from $14,000 in 2017.

2018 Roth IRA income limits

  • The Roth IRA income phase out is raised to $120,000- $135,000 for individuals, and $189,000-$199,000 for married couples filing jointly.
    • o The phase out for married individuals who file a separate return remains unchanged at $0-$10,000.

2018 Lifetime Learning Credit income limits

  • Gross income in excess of $57,000 ($114,000 if married and filing jointly) is used to determine the amount of Lifetime Learning Credit, up from $56,000 and $112,000 in 2017.
    • Note: The Tax Cuts and Jobs Act, released earlier this month, proposes eliminating the Lifetime Learning Credit.

What this means for college savers:

529 college savings plans

For most families, 529 plans are the best way to save for college. But did you know 529s can also be used as an estate planning vehicle? 529 plan contributions are treated as completed gifts and will be removed from your taxable estate. This is a popular strategy among grandparents, especially since the gifts are revocable. In 2018, 529 plan contributions, combined with all other gifts that year to the same beneficiary, of up to $15,000 (the annual exclusion amount), will not count against your lifetime exemption.

Grandparents (or anyone) looking to give a larger amount in 2018 can gift up to $75,000 if they elect to treat the contribution as if it were made over a five-calendar year period for gift tax purposes.

RELATED: Are there gift and estate tax benefits for 529 plans?

Roth IRAs

A Roth IRA is a popular college savings vehicle for a couple of reasons. Families are able to contribute up to $5,500 per year in after-tax dollars that will grow tax-free as long as the funds are held until retirement. If you take an early distribution (before age 59 ), you'll get hit with a 10% penalty on the earnings, unless the money is used to pay for qualified education expenses. What's more, you can withdraw your contributions (the money you put in) at any time penalty-free.

But depending on your income you may not be eligible to participate in a Roth IRA. Higher income limits in 2018 mean more families will be able to take advantage of their benefits.

Lifetime Learning Credit

The Lifetime Learning Credit is a tax credit for 20% of up to $10,000 (totaling $2,000) in combined college tuition and mandatory fees for a parent, spouse and their children in a given year. In 2018, raised income limits will make the credit available to more families.

It's important to note that there is no double-dipping allowed, which means the expenses used to generate the Lifetime Learning Credit can't be included in your total 529 qualified expenses. You're also ineligible to claim the Lifetime Learning Credit if you are claiming the American Opportunity Tax Credit (AOTC).

RELATED: Federal tax incentives targeted to education

 

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