In the past, saving for a child's college education was considerably easier and less expensive. Fewer tax benefits also made things easier. Families looking to save for a child's college education now have access to a bewildering assortment of tax-advantaged college savings accounts, tax credits, and other tax benefits. Consider the tax implications of several college savings strategies here.

College Savings Plans With Tax Benefits

In 1990, the first tax-advantaged college-savings program was introduced. With the Education Savings Bond Program, interest earned on specific government bonds redeemed to pay for such a child's tuition was exempt from federal income tax. Eligible bonds include those in Series EE and Series I.

The bond should be in your name or the name of you and your spouse. As a result, bonds issued in your child's name are ineligible for the tax benefits described above. If your 2021 modified earning (MAGI) is greater than $153,550 for a married couple or $97,350 for a single person, you will not be eligible for this tax relief.

To save for a child's college education, you could also choose a 529 Plan or a Successful technique Education Savings Account, which invests in mutual funds. The SECURE Act, signed into law by President Mr. Trump in December 2019, allows up to $10,000 in student debt repayments through 529 and ESA plans.

College Tuition Tax Credits

It is possible to save up to $2,000 a year in federal taxes thanks to the Lifetime Learning Credit, which equals 20% of the first $10,000 in eligible school costs. These tax incentives, like many others, have an income limitation. MAGI for 2022 must be between $80,001 and $90,000 for single filers or between $160,000 and $180,000 for married filers filing jointly to receive full credit.

Contributions to 529 plans may be eligible for a tax benefit in some states. For instance, Indiana residents can receive a state income tax credit of up to $1,000 per year, equivalent to 20 percent of their CollegeChoice 529 account contributions.

Increases in Tax Cuts

The government enables your employer to pay up to $5,250 per year for your education, including tuition, books, supplies, and equipment if you work full-time while attending classes. For undergraduate and graduate students, this tax-free benefit is available. Don't overlook the interest on student loans when calculating your taxable income.

The interest you pay on your student loans is tax-deductible up to a maximum of $2,500 each year. 15 Married couples earning more than $140,000 will no longer be able to use this deduction after 2021, and non-itemizers will no longer be able to take advantage of it entirely after earning $170,000. 16

Increasing the Value of Your College Savings with Tax Benefits

It's not uncommon for account holders to be unaware of the potential value of the tax benefits they receive from their 529 college savings plan. When it comes to tax planning for next year, let's use a hypothetical situation to show how a 529 plan's tax benefits might help a family's funds go further.

Saving For College Is Crucial.

Most well-aying positions require post-secondary education in today's market, whether it's an apprenticeship, vocational school, technical college, two-year college, four-year school, or graduate school. In light of this, many young people are pursuing postsecondary education. Of high school graduates in 1980, almost 50 percent went to college. 70% of 2016 high school graduates in the United States are now enrolled in two- or multiple colleges.

How 529 Plans Save Families Taxes

The federal tax system may save many of life's key costs, including retirement, health care, and housing. Five hundred twenty-nine college savings plans are federally tax-advantaged savings vehicles that help families save for education. Five hundred twenty-nine programs aim to increase the value of each dollar invested in education.

How States Aid Individuals in Savings

Investing in a 529 plan earns state tax benefits for residents of over 30 states and the District of Columbia. A wide range of state-specific tax benefits differ from state to state, and they all rely on a family's income and filing status. Illinois taxpayers can deduct up to $10,000 from their taxable income in Illinois 529 contributions, while married taxpayers filing can deduct up to $20,000 from their Illinois taxable income.

With the Full Savings Boost!

Once their child was born, our hypothetical family prudently decided to save $1,000 for college since they knew it was necessary and pricey. It cost them $50 less in state income taxes when they contributed $1,000. Their $1,000 earned an extra $1,400 thanks to tax-deferred compounding. As a result of the federal tax advantages of the 529 savings plan, the family was able to save $210.