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I am more than 30's, having a full time job. I am looking for Part Time Master's Graduation Program which will enhance my career.

Can i deposit around 5000 for this year in a 529 fund. Whether this will save my Tax deduction for this fiscal year?

Can i use this fund for my Education Expenses within couple of years..?

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Yes, maybe. The 529 is pretty cool in that you can open an account for yourself, and change the beneficiary as you wish, or not. In theory, one can start a 529 for children or grandchildren yet unborn.

Back to you - a 529 is not deductible on your federal return. It grows tax deferred, and tax free if used for approved education. Some states offer deductions depending on the state. There is a list of states that offer such a deduction.

  • The bit about starting a 529 for the yet-to-be born might be worth some additional explanation. Unless I'm mistaken, you do this by naming some "temporary" (already-born) beneficiary and then change the name later. As far as I know, you cannot "directly" start an account for someone until they are born. – user32479 Aug 24 '15 at 12:04
  • My answer itself addressed that. Open account with yourself as bene, then change when child is born or when child is approaching college age, – JTP - Apologise to Monica Aug 24 '15 at 12:49
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You are faced with a dilemma. If you use a 529 plan to fund your education, the short timeline of a few years will limit your returns that are tax free. Most people who use a 529 plan either purchase years of tuition via lump sum, when the child is young; or they put aside money on a regular basis that will grow tax deferred/tax free. Some states do give a tax break when the contribution is made by a state taxpayer into a plan run by the state.

The long term plans generally use a risk profile that starts off heavily weighted in stock when the child is young, and becomes more fixed income as the child reaches their high school years. The idea is to protect the fund from big losses when there is no time to recover.

If you choose the plan with the least risk the issue is that the amount of gains that are being protected from federal tax is small. If you pick a more aggressive plan the risk is that the losses could be larger than the state tax savings.

Look at some of the other tax breaks for tuition to see if you qualify

Credits

An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit.

Who Can Claim an Education Credit?

There are additional rules for each credit, but you must meet all three of the following for either credit:

  • You, your dependent or a third party pays qualified education expenses for higher education.
  • An eligible student must be enrolled at an eligible educational institution.
  • The eligible student is yourself, your spouse or a dependent you list on your tax return.

If you’re eligible to claim the lifetime learning credit and are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. You can't claim the AOTC if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. For more information about AOTC and foreign students, visit American Opportunity Tax Credit - Information for Foreign Students.

Deductions

Tuition and Fees Deduction

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if, for example, you cannot take the lifetime learning credit because your income is too high.

You may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax.

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