Understanding the College Tution Tax Credit

Paying for college these days can seem like a daunting task for many families. With the pressure to graduate from college increasing as fast as the price in tuition, the whole process can be overwhelming. For those families who can't afford to write out a check for thousands of dollars for tuition, there is the college tuition tax credit, prepaid college tuition plans, and the 529 college saving plan.

The college tuition tax credit comes in the form of the Hope credit and the Lifetime Learning credit. Both allow the taxpayer the ability to subtract dollar for dollar the amount of the credit from your tax bill. Both credits cannot be used for the same student during the same year.

A 529 college saving plan can either be one of the prepaid college tuition plans or a regular 529 college saving plan. Prepaid college tuition plans allow the investor to lock in the cost of college tuition today even though the student will be attending in the future. These plans are becoming more and more popular and are available in most states. A regular 529 college saving plan is similar to investing in stocks or mutual funds and the rate of return varies depending on the performance of the companies that were invested in. It's not too late to take advantage of the college tuition tax credit or the prepaid college tuition plans. Before deciding what to invest in be sure to talk to an investment professional as well as other parents who have experience investing.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.