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LearnFAQCollege Planning

Can I claim education tax credits in the same year I take a 529 withdrawal?

Answer

Yes, but you cannot use the same dollar of expenses for both. To claim the American Opportunity Tax Credit, which the IRS bases on up to $4,000 of qualified tuition and fees, you must set aside that $4,000 of expenses and pay them with non-529 money. Then use the 529 for the remaining costs, including room and board, which the credit doesn't cover anyway. Coordinating this way lets a family capture the full credit and still get tax-free 529 growth on everything else. If you accidentally use 529 funds for expenses already counted toward a credit, the overlap becomes a taxable non-qualified distribution. Track which expenses you assign to which benefit each year.

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