Lesson 7 of Fundamentals: Education Planning

Question 1

Expenses to Consider for Education Funding

Answer 1

• Tuition
• Books
• Lodging
• Transportation
• Insurance Needs
• Meals
• Entertainment
• Fraternity/Sorority
• Computer
• Internet Access
• Etc

Question 2

Financial Aid

Answer 2

• After determining a client’s goals and gathering external data such as the cost of attending school (tuition and other expenses), the planner should focus on financial aid.
• All students should complete the Free Application for Federal Student Aid (FAFSA)
• FAFSA begins the financial aid process.
• Information from the FAFSA is sent to colleges of the student’s choice.
• Information on the FAFSA is used to calculate the Expected Family Contribution.

Question 3

FAFSA

Answer 3

Free Application for Federal Student Aid

Question 4

EFC

Answer 4

Expected Family Contribution

Question 5

Expected Family Contribution

Answer 5

Developed by Congress to determine how much a family should contribute toward their child’s education.

Formula considers the

• size of their family,
• number of family members in college at the same time,
• income,
• assets,
• unusual financial burdens such as medical bills, and
• many others.

Used to determine what type of financial aid a student qualifies for.

A student may have a need at one school, but not at another because of the tuition difference between schools.

• Community College is $10,000 while Private College is $50,000. The EFC is $10,000. So your financial aid for CC is $0 but at PC it’s $40,000.

Students who are independent may be eligible for more aid than children who are considered dependents.

Question 6

Formula to determine financial need

Answer 6

Tuition or Cost of Attendance

(minus)

Expected Family Contribution

= Financial Need

Question 7

Students are considered independent if they are

Answer 7

• Over age 23
• Married
• If they have legal dependents other than a spouse.
• Working on Master’s or Doctorate
• A veteran of the US armed forces.
• Orphan or ward of the court until age 18.

Exam Tip: Know the First 3

Question 8

Most Important Federal Aid Programs

(Which ones are most commonly tested)

Answer 8

• Federal Pell Grant
• Stafford Loan (Federal Direct Loan)
• Parent Loans for Undergraduate Students (PLUS)
• Grad PLUS loan for Graduate Students (PLUS Direct)
• Federal Perkins Loan Program

Question 9

Federal Pell Grant

Answer 9

• Strictly NEED based and
  
  • Based on students “financial need”.
• dependent on the EFC amount.
• Free money - not a loan
• EFC determines a student’s eligibility and how much is awarded.
• Only students who have not earned a bachelor’s or professional degree qualify.

Question 10

Stafford Loan (Federal Direct Loan)

Answer 10

Primary type of financial aid provided by the

• US Department of Education

Are

• Student Loans

Repayment begins after a

• 6-month grace period of leaving school or
• falling below part-time status (6 semester hours).

Stafford Loans are not appropriate

• if the parents intend to repay the loans.

Two types of a Stafford loan

• Subsidized versus
• Unsubsidized)

Question 11

Subsidized Stafford Loan

Answer 11

• Interest is paid for by the federal government while the undergrad is in school.
  
  • So interested not charged until hraduation, leaving school or below part time status,
• Is NEED based
• Not available for grad students.

Question 12

Unsubsidized Stafford Loan

Answer 12

• The interest begins to accrue when the funds are disbursed. (disbursed = made available for use, lender gives money).
• Interest may be capitalized or paid as accrued.
• Is NOT NEED-based, and is
• available to undergrad and graduate students.

Question 13

Parent Loans for Undergraduate Students (PLUS)

Answer 13

A PLUS loan for parents to pay for their children’s undergrad studies.

Is NOT NEED-based, but depends on parents credit score.

Must be repaid within 10 years.

PLUS loans are NOT subsidized.

PLUS loans are appropriate for parents who can afford to make a loan payment but may not have saved anything for education.

Repayments commences once the final disbursement is made.

• Request can be made for deferrement while your child is enrolled at least half time.
• Payments commence when the child graduates, leaves school or drops below half-time.

Question 14

Grad PLUS loan for Graduate Students (PLUS Direct)

Answer 14

• Graduate or professional student enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree or certificate.
• Dependent on student credit score.
• Maximum PLUS loan amount you can borrow is the
  
  • cost of attendance minus any other financial assistance you receive.
• Begin making payments six months after you graduate, leave school, or drop below half-time enrollment.
• Interest accrues as you go -
  
  • pay it as you go or let it be added to your balance.

Question 15

Federal Perkins Loan Program

Answer 15

The program expired on September 30, 2017

• Is for students with exceptionally low EFC amounts.
• Is NEED based

Question 16

Campus-Based Financial Aid

Answer 16

Federal Supplemental Education Opportunity Grand (FSEOG)

Federal Work Study

Question 17

FSEOG

Answer 17

Federal Supplemental Education Opportunity Grant

• Awarded to students with a very low EFC.
• Only paid if funds are available in contrast to Pell Grant where if you qualify, you’ll receive it.
• Is NEED based.

Question 18

Federal Work-Study

Answer 18

On or off-campus employment to help education expenses.

Question 19

Income Based Repayment (IBR)

Answer 19

Monthly student loan repayment of

• 10-15% of discretionary income with
• remaining debt forgiveness after 25 years (taxable income in the year forgiven)

Recalculated each year based on:

• income,
• family size, and
• spousal income (if filing MFJ).

Stafford loans and most other Federal Loans are eligible for IBR.

PLUS loans (other than PLUS loans to graduate students) are not eligible for IBR.

Question 20

Pay as You Earn Repayment (PAYE)

Answer 20

Available if the borrower has a high debt-to-income ratio.

Monthly student loan repayment of

• 10% of discretionary income, with
• remaining debt forgiveness after 20 years.

Only Direct Federal loans (aka Stafford) and PLUS loans to graduate students are eligible.

PLUS loans (other than PLUS loans to graduate students) are not eligible for IBR.

Question 21

Revised Pay as You Earn Repayment (REPAYE)

Answer 21

Monthly student loan repayment of 10% of discretionary income, with remaining debt forgiveness after 20 years.

Only Direct Federal loans (aka Stafford) and PLUS loans to graduate students are eligible.

Question 22

Graduated Repayment

Answer 22

Loan paid over 10 years

• starting off lower than the Standard Repayment Plan and
• increases every two years.

Results in more interest being paid than the Standard Repayment Plan

• but may be more advantageous for students starting off in an entry-level job.

Question 23

Extended Repayment

Answer 23

Available when the loan balance is over $30,000.

• Payments can be either fixed or
• graduated, are are payable
• over 25 years.

Question 24

Income Contingent Repayment (ICR)

Answer 24

Similar to Pay As You Earn, except

• 20% of discretionary income or
• payment amount on a fixed payment over 12 years.
• Loan balances after 25 years will be forgiven.

Only Direct Federal Loans and graduate PLUS loans are eligible.

Question 25

Tax Advantage Plans for Education Savings

Answer 25

1. Qualified State Tuition Plans
   • Prepaid tuition
   • Savings plan (529 Plan)
   • 529A ABLE Accounts
2. Coverdell Education Savings Account
3. Roth IRA
4. Series EE Savings Bond
5. Uniform Gift to Minor’s Act

Question 26

Prepaid Tuition

Answer 26

• Is considered an ASSET OF THE PARENT for financial aid purposes
• Can be used to pay for in-state college credit at today’s cost.
• Basically purchasing college credits today and using them when your child goes to college.
• In state college credit at a fixed costs.
• NO PHASEOUT
  • Meaning It doesn’t matter how much money you make to contribute the amount you want to contribute.

Question 27

Advantages + Disadvantages or Prepaid Tuition

Answer 27

Advantage:

• Lock in tuition costs in today’s dollars.

Disadvantage:

• Only earn a return equal to tuition inflation.
• The child may receive a scholarship and not use tuition credits. Would receive princiapl back but no interest.
  • Parents can return tuition credits, but only receive the principal back, typically without interest.
• State schools may have less than desirable curriculum in the student’s area of interest.
• If for any reason the student does not attend the selected university, you generally only receive the return on principal.
• Designed to only pay the cost of tuition; they do not include room and board.

Question 28

Savings Plan or 529 Savings Plan

Answer 28

Considered an ASSET OF THE PARENT for financial aid purposes.

Contribute to a savings plan that invests in a diversified portfolio of stocks and bonds based upon the child’s age.

Typically for parents or grandparents,

• but anyone can contribute to a savings plan that invests in a diversified portfolio of stocks and bonds based on the child’s age.
• Significant for grandparents that want to reduce their gross estate.

Any appreciation in the asset value is tax-free if used for qualified education expenses.

Contributions can be recognized as being made pro ratably over a five-year period.

• An individual can contribute $85,000 ( 5 x $17,000) in one year, without any gift tax consequences.
• It’s the 5 x annual gift tax exclusion amount.

A couple that elects gift splitting can contribute

• $170,000 ($17,000 x 2 x 5) in one year. Grandparents need to be alive for 5 years though.

Qualified education expenses for a 529 Savings Plan include

• Tuition and fees,
• books,
• supplies, and
• equipment,
• along with room and board for students enrolled at least half-time.

Beginning in 2018,

• up to $10,000 of annual distributions may be taken from a 529 Plan to pay for tuition in connection with enrollment or attendance at an
• elementary or secondary public,
• private, or
• religious school.

NO PHASEOUT

• Meaning It doesn’t matter how much money you make to contribute the amount you want to contribute.

Beginning in 2020, based on the SECURE Act, the following provisions have been added to 529 Plans:

• An aggregate amount of $10,0000 can be distributed to pay student loans of the beneficiary (siblings).
• Qualified distributions can be made for apprenticeships that are registered and certified with the Secretary of Labor under the National Apprenticeship Act.

Registered Apprenticeships to the List of Qualified Tuition:

• Includes apprenticeships fees
• Materials and
• Tools

According to Professor 520 Plans are a default answer unless they give you information that says it won’t be 529 Plans.

Question 29

Advantages of Savings Plan or 529 Savings Plan

Answer 29

• Possible state income tax deduction for contributions if your state has an income tax if the client lives in the state in which they opened the 529 plan.
• There is no AGI phase-out for who can participate, so regardless of income level, anyone can take advantage of 529 savings plan.
• The account owner controls the assets, typically a parent or grandparent.
• The account owner can change the beneficiary anytime.
• The contributor can remove assets from their gross estate.

Question 30

Disadvantages of Savings Plan or 529 Savings Plan

Answer 30

• There is a 10% penalty on the earnings and their earnings are included in gross income if not used for qualified education expenses.
  • HOWEVER, exceptions to the 10% penalty include distributions on account of
    
    • death,
    • disability, and
    • scholarship for the beneficiary.
• Distributions from plans owned, by someone other than the parents, for educational expenses are considered income of the child for FAFSA purposes.
  • Exam Tip: Use Parent for the first two years and grandparent for the last two years if grandparents and parents both have 529 Plans for the same child.

EXAMPLE:

• Bob’s daughter, Angela, receives a $10,000 tuition scholarship. Therefore, Bob the owner of the 529 plan takes out $10,000 for his personal use. Bob must include any earnings from the distribution in taxable income but does not have to pay the 10% penalty on the earnings portion because of the scholarship exception.
• The portion of the withdrawal that is NOT considered earnings (i.e. Bob’s contribution) is NOT taxable or subject to penalty.

Question 31

529A ABLE Accounts

Answer 31

• (Achieving a Better Life Experience) accounts
  • assist persons with disabilities similar to a Section 529 Tuition Plan.
  • Individuals can set them up through any of the state’s programs.
• ONLY 1 ABLE account may be established for each eligible beneficiary.
• Investment selections can be charged 2x per year.
• Beneficiaries of the ABLE account
• must be entitled to benefits under social security disability or SSI, or
• have filed a disability certification with the IRS.
• Contributions can be made by anyone, not exceeding $17,000 in total per year.
• Rollovers from a 529 plan are eligible to be rolled to a 529A
  • as long as the ABLE account beneficiary is the same or
  • is a family member of the original beneficiary.
  • Rollover will be treated as a contribution for that year.
• Qualified expenses are:
  • Education,
  • housing,
  • transportation,
  • assistive technology,
  • personal support services,
  • legal fees.
• ABLE Account balances are not counted in determining eligibility for a federal means-tested program as long as the balances remain under $100,000.
  • If the account exceeds $100,000,
    
    • SSI Payments will be suspended until the account is below $100,000.

Question 32

Coverdell Education Savings Account (ESA)

Answer 32

• Assets in a Coverdell ESA are considered an ASSET OF THE PARENT for financial aid purposes.
• Contributions are limited to $2,000 per year, per beneficiary.
  • A parent and grandparent can contribute to a Coverdell ES for the same child, but contributions cannot exceed $2,000 per year.
• Contributions are phased out
  • for MFJ tax filers with income $190,000 - $220,000 and
  • single tax filers with income $95,000 - $110,000.
• Contributions grow tax-deferred unless used for qualified education expenses.
  • If used for qualified education expenses, then earnings are tax-free.
• A Coverdell ESA can be used for both private elementary or secondary education.
• The account owner may change the beneficiary anytime.
• Funds must be used by age 30 of the beneficiary.
• 10% penalty on the earnings and
  • earnings are included in gross income if not used for qualified education expenses.
• An account owner cannot make contributions beyond the beneficiary’s 18th birthday.
• Qualified elementary and secondary expenses include
  • tuition and fees,
  • books supplies,
  • equipment,
  • tutoring,
  • computer-related expenses, and
  • certain special needs services for special needs beneficiaries.
  • room and board,
  • uniforms, and
  • transportation if required or provided by the institution.
• Qualified higher education expenses include
  • tuition and fees,
  • books,
  • room and board, and
  • computer-related expenses.

Question 33

ROTH IRA

Not likely to be a answer for Education funding.

Answer 33

• Contributions are limited to $6,500 per year (2023),
  
  • plus $1,000 if age 50 or older.
• Contributions are NOT Tax Deductible.
• Contributions grow tax deferred and QUALIFIED DISTRIBUTIONS are excluded from gross income.
• Qualified distribution rules:
  • Must meet a 5-year holding period and one of the following.
  • Death, disability, attainment of age 59.5 or first-time house purchase limited to $10,000.
• The account owner can always:
  • withdrawal contributions & conversions without tax consequences.
• For nonqualified distributions,
  • the earnings are included in gross income and the earnings are subject to a 10% penalty.
• Education Benefit:
  • 10% penalty is waived on nonqualified distributions used for education expenses;
    
    • however, the earnings would still be included in gross income.
  • The account owner can always withdrawal contributions and conversions without tax consequences,
    
    • but it may impact the attainment of any retirement goal.
• Qualified expenses for Roth IRAs include
  • tuition and fees,
  • books,
  • supplies, and
  • equipment,
  • along with room and board of students enrolled at least half-time.
• Withdrawl of earnings is generally taxable.

Question 34

Series EE/Series E Savings Bond

Answer 34

• Sold at face value, $25 minimum purchase ($10,000 annual maximum), available only through Treasury Direct (online)
• May “convert” into 529 Plan and Coverdell ESA
  • Must cash in the EE bond and invest proceeds into the 529 or the Coverdell.
  • Probably because of diversification. (From Lecture).
• Nonmarketable, nontransferable
• Do not pay interest periodically;
  
  • bond slowly increases in value over 30 years based on a fixed rate at the time of purchase.
• Bonds must NOT be purchased in the child’s name
• Buyer must be 24 years or older when purchased.
• Redeemable after one year with a 3-month interest penalty if redeemed in less than 5 years.
• Interest is not subject to federal income taxes
  • until a bond is redeemed.
• May qualify for tax-free treatment if redeemed for education expenses.
• Interest is not taxed at the state or local level.
• EXAM TIP:
  • EE Bond can be used for tuition and fees, in addition to the AOTC. It is just not the same expenses.

Question 35

Uniform Gift to Minors Act / Uniform Transfers to Minors Act
(UGMA / UTMA)

Answer 35

• Assets are considered an ASSET OF THE CHILD when determining financial aid.
• Assets are placed in a custodial account:
  • A donor appoints a custodian.
  • A parent can be both
  • Could have a grandparent as the donor and a parent as the custodian.
  • The donor irrevocably gifts the asset to the custodial account.
• Proper Titling:
  • Parent as Custodian for Child.
• Funds are NOT transferrable to another beneficiary.
• Taxation of unearned income (interest, dividends, and capital gains)
  • may be subject to the kiddie tax.
• If the child is less than 19 then the unearned income MAY be taxed using the parental tax brackets. (SECURE ACT)
• If the child is 19 or older then the unearned income is taxed at the child’s rate.
  
  • Exception: a full-time student age 23 or less is subject to the kiddie tax rule.
• The Primary risk is that a child can use assets for something other than education.
  • Traveling, sports car, a professional underwater basket weaver.
• A UTMA may include
  • real estate as an investment, plus stock, mutual funds, or bonds.
• A UGMA only includes
  • stocks, mutual funds, and bonds but it does not include real estate.

Question 36

Exam Question - Education Planning

Geoff and Rhonda want to pay for their children’s college education. Their children are currentlynages 2 & 4. They anticipate needing to save $5,000 per year, per child, to fund their education. WHich of the following investments would you recommend in the education account.

a) High Yielding Corporate bonds in an UGMA account.
b) Highly appreciating rental property in an UTMA account.
c) Well-diversified portfolio of common stocks in an UGMA account.
d) EE Savings bond in the children’s name.

Answer 36

Answer: C

High yielding corporate bonds and rental property may create a kiddie tax problem. EE savings bond need to be purchased in the parents name.

Question 37

Practice Question

John is the custodian for an UGMA account for the benefit of Linda, who is a minor. Linda’s father originally contributed to the account and walks into the planner’s office demenading the account to be liquidated. Who can liquidate the account?

a) John
b) Linda
c) Linda’s father
d) CFP Professional

Answer 37

Answer: A

The custodian will because Linda is a minor.

Linda’s father can’t because it is a irrevocable gift.

Question 38

Deductibility of Student Loan Interest

Answer 38

Interest on student loans is deductible above the line (before adjusted gross income) and is limited to $2,500.

The Loan must have been used for:

• Tuition,
• room,
• board,
• supplies, or
• other necessary expenses.

Question 39

Deductibility of Qualified Tuition and Related Expenses

Answer 39

Taxpayer Certainty and Disaster Relief Act of 2020 repealed the deduction for tuition and fees as a deductible above the line (before adjusted gross income) for tax years beginning after December 31, 2020.

Question 40

Lifetime Earning Credit

Answer 40

• Is available for tuition and fees
  • related to undergraduate,
  • graduate, or
  • professional programs.
• The tax credit amount is:
  • 20% of up to $10,000 in qualified expenses per year.
  • Maximum lifetime learning credit “Per Family” is $2,000 per year.
  • It can be claimed for an unlimited number of years of college.
  • Per family credit is based on the family’s tax return.
• Qualified expenses for the Lifetime Learning Credits include
  • tuition and fees,
  • student activity fees,
  • books,
  • supplies, and
  • equipment as long as the fees are paid directly to an eligible education institution.

EXAMPLE:

• A son who attends school and incurs $4,000 in expenses, and a father who attends school and incurs $8,000 in expenses.
• Total Tax credit for the family is (8,000 + 4,000) x 20% = $2,400, but limited to $2,000 per family.

Question 41

American Opportunity Tax Credit (2011 and after)

Answer 41

• Applies to tuition and fees for 4 years of post-secondary education.
• The tax credit consists of:
  • 100% of the first $2,000 in qualified expenses
  • 25% of the second $2,000 in qualified expenses.
• The maximum tax credit “Per Student” is $2,500 per year.
• The per-student deduction (tax credit) is based on the number of dependents students on the family’s return.
• A parent who claims a child as a dependent is entitled to take the American Opportunity Tax Credit for the educational expenses of the child.
• Qualified expenses for the American Opportunity Tax Credit include tuition and fees along with student activity fees
  
  • paid directly to the University.
• Other qualified expenses do not have to be paid directly to the University,
  
  • including books, supplies and equipment.
• EXAMPLE:
  • Son, who is a freshman, incurs $4,000 in expenses, and daughter, who is a sophomore, incurs $5,000 in expenses. The total tax credit for the family is $5,000 ($2,500 per student).

Question 42

Important Considerations

Answer 42

• An individual MAY claim an American Opportunity Tax Credit or Lifetime Learning Credit in the same year as a distribution from a 529 plan, just NOT for the same dollars attributed to expenses.
• An Individual MAY NOT claim both an American Opportunity Tax Credit and a Lifetime Learning Credit for the same child, in the same year.
• An individual MAY NOT use an American Opportunity Tax Credit or Lifetime Learning Credit for the SAME expense paid by a qualified tuition program.
• An individual MAY use the American Opportunity Tax Credit or Lifetime Credit in the same year as a distribution from a qualified tuition plan, just NOT the same expenses.
• EXAMPLE: (1st One)
  • Fredrica’s parents paid her 2023 tuition for her sophomore year in the amount of $12,000 along with books, room and board, and supplies in the amount of $5,500. Her parents used Fredrica’s 529 plan to pay the expenses other than tuition, paid $4,000 from their checking account towards tuition and Fredrica took out a student loan to cover the remainder of her tuition.
  • The family can benefit from multiple tax savings. I. the tax free distribution from the 529 plan, and 2. the AOTC for the tuition that was paid directly by them.
  • They could not use the 529 to pay the tuition and also use AOTC on the amount paid from the 529. That would be doubling dipping on the tax advantages.
• In 2023, AOTC and LLC share the same phase out limits:
  • Single: $80,000 - $90,000
  • MFJ: $160,000 - $180,000

Question 43

Coordination of Benefits Example:

Sydney is in graduate school and incurs $3,800 in tuition expenses. William is a freshman and incurs $6,000 in tuition expense. Dad, who has a 4 year degree, goes back to school and incurs $8,000 in tuition expenses. What are the maximum American Opportunity Tax Credits and Lifetime Tax Credits they can take?

Answer 43

Question 44

Sydney

Answer 44

Tuition:
$3,800

AOTC:
N/A - Only for the first 4 years.

Lifetime:
$3,800 x 20% = $760

Question 45

William

Answer 45

Tuition:
$6,000

AOTC:
($2,000 x 100%) + ($2,000 x 25%) = $2,500

Lifetime:
Cannot use both the American Opportunity Tax Credit and Lifetime for the same person in the same year.

Question 46

Dad

Answer 46

Tuition:
$8,000

AOTC:
N/A - Only for first 4 years

Lifetime:
$8,000 x 20% = $1,600

Question 47

Total AOTC

Total Lifetime

Answer 47

AOTC:
$2,500

Lifetime:
$2,360

Question 48

Total Tax Credit for the Family

AOTC & Lifetime

Answer 48

AOTC:
$2,500

Lifetime:
$2,000 (Maximum Credit)

Question 49

Summary for 2023

Answer 49

EXAM TIP:

When determining which savings vehicle is most appropriate to recommend, they may give you the client’s AGI and you can eliminate choices based on their income.

The single and married filing jointly phaseout limits for Coverdell education savings accounts, American opportunity tax credits and lifetime learning credits are provided on the exam formula sheet.

Question 50

Prepaid Tuition (Benefits and Limits Per Year)

Answer 50

Benefits:

• Pay for college credit in today’s dollars

Limits Per Year:

• None

Phaseout:

• No

Question 51

529 Plan (Benefits and Limits Per Year)

Answer 51

Benefits:

• Tax free if used for qualified education expenses.

Limits Per Year:

• State-dependent

Phaseout:

• No

Question 52

Coverdell ESA (Benefits and Limits Per Year)

Answer 52

Benefits:

• Tax-free growth if used for qualified education expenses

Limits Per Year:

• $2,000

Phaseout:

• Yes

Question 53

ROTH IRA (Benefits and Limits Per Year)

Answer 53

Benefits:

• No 10% penalty if used for qualified education expenses

Limits Per Year:

• $6,500

Phaseouts:

• Yes

Question 54

EE Bond (Benefits and Limits Per Year)

Answer 54

Benefits:

• Interest is excluded from income if used for qualified education expenses.

Limits Per Year:

• None

Phaseouts:

• Yes

Question 55

Student Loan Interest Deduction (Benefits and Limits Per Year)

Answer 55

Benefits:

• Deduct student loan interest before AGI.

Limits Per Year:

• $2,500

Phaseouts:

• Yes

Question 56

Lifetime Learning Credit (Benefits and Limits Per Year)

Answer 56

Benefits:

• 20% tax credit on $10,000 of education expenses.

Limits Per Year:

• $2,000

Phaseouts:

• Yes

Question 57

American Opportunity Tax Credit (Benefits and Limits Per Year)

Answer 57

Benefits:

• 100% of the first $2,000 and 25% of the second $2,000 in expenses for the first four years.

Limits Per Year:

• $2,500

Phaseouts:

• Yes

Question 58

Employer Education Assistance

Answer 58

• An employer may pay for or reimburse an employee for education expenses.
• Any benefit or reimbursement is not included in income up to $5,250.
• Any ER paid educational loan repayment before January , 2026 are excluded from income, up to the $5,250 limit.
  • Payments can be made to the employee or lender.
  • Loans of spouses or dependents do not qualify.
  • Employer cannot receive the above-the-line interest deduction.

Question 59

Summary of Qualified Education Expense Definitions

Answer 59

Question 60

Prepaid Tuition

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 60

Tuition & Fees:

• YES

Books & Supplies:

• NO

Equipment:

• NO

Room & Board:

• NO

Question 61

529 Plan

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 61

Tuition & Fees:

• YES

Books & Supplies:

• YES

Equipment:

• YES

Room & Board:

• If enrolled at least 1/2 time.

Question 62

Coverdell ESA

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 62

Tuition & Fees:

• YES

Books & Supplies:

• YES

Equipment:

• YES

Room & Board:

• YES

Question 63

Roth IRA

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 63

Tuition & Fees:

• YES

Books & Supplies:

• YES

Equipment:

• YES

Room & Board:

• If enrolled at least 1/2 time.

Question 64

EE Bond

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 64

Tuition & Fees:

• YES

Books & Supplies:

• NO

Equipment:

• NO

Room & Board:

• NO

Question 65

Lifetime Learning

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 65

Tuition & Fees:

• PAID DIRECTLY TO UNIVERSITY

Books & Supplies:

• PAID DIRECTLY TO UNIVERSITY

Equipment:

• PAID DIRECTLY TO UNIVERSITY

Room & Board:

• NO

Question 66

American Opportunity

(Tuition & Fees, Books & Supplies, Equipment, Room & Board)

Answer 66

Tuition & Fees:

• PAID DIRECTLY TO UNIVERSITY

Books & Supplies:

• YES

Equipment:

• YES

Room & Board:

• NO

Question 67

Summary & Phaseout Chart

Includes:

• Phaseout
• Benefit
• Limits Per Year

Answer 67