COVERDELL EDUCATION SAVINGS ACCOUNT (COVERDELL ESA)
A tax-advantaged investment account that allows accumulation of funds to cover future education expenses, subject to limitations. Coverdell ESAs allow money to grow tax deferred and proceeds to be withdrawn tax free for qualified education expenses at a qualified institution.
QUALIFIED TUITION PROGRAM (QTP)
A qualified tuition program allows a taxpayer to make contributions to an account or program to be used to pay qualified higher education costs. (QTPs are sometimes called section 529 plans.)
Benefits of establishing a QTP are: Earnings accumulate tax free while in the account, the beneficiary does not generally have to include the earnings from a QTP as income, distributions are not taxable when used to pay qualified higher education expenses, contributions may be tax deductible on the Colorado return. However, if the amount of a distribution is greater than the beneficiary’s qualified higher education expenses, a portion of the earnings is taxable.
AMERICAN OPPORTUNITY TAX CREDIT (Hope Credit)
A Federal tax credit that compensates families for a certain amount of tuition per student per year for the first four years of post-secondary education. The maximum credit is $2,500 per student (100% of the first $2,000 of eligible expenses and 25% of the next $2,000 of expenses). The credit is per student per year. A family may have more than one eligible student in a year.
LIFETIME LEARNING CREDIT
A Federal tax credit for qualified higher education expenses incurred to learn or improve job skills. The lifetime learning credit is a nonrefundable tax credit equal to 20% of up to $10,000 of qualified tuition and fees paid during the tax year. The maximum credit is $2,000.