Improved Tax Breaks For Education Expenses

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Improved Tax Breaks For Education Expenses

Under the $1.35 trillion tax law just enacted, going
to school might become more affordable as improved tax
breaks for education expenses come on line in 2002.

Among the new provisions are an increased annual
contribution limit to Education IRAs and a change in
the time limit for deducting student loan interest.

Many folks had not been contributing to Education IRAs
because the annual limit of $500 was too low to build
much college savings even if started at a child's birth.

So Congress with President Bush's blessing quadrupled
the limit to $2,000 a year. This means people who
invest $2,000 per year at an eight percent annual
return will have more than $80,000 in eighteen years.
At the $500 current limit, the total would only grow
to $20,000. A heck of a difference!

Also, the new law allows you to use the money to cover
educational expenses such as private school tuition
and school-related computer and internet service costs
at the elementary and secondary level, not just college.
This is a BIG change.

Even thought the annual deduction for student loan
interest was not raised from $2,500 a year, graduates
now have more than five years to take that deduction.

The new bill repeals the five year limit as well as
the restriction that voluntary interest payments
aren't deductible.

For single taxpayers, the interest deduction will be
allowed if you earn $65,000 or less, an increase from
the current $50,000. If married, the income limit goes
from $100,000 to $130,000. This new rule is effective
for interest paid after December 31, 2001.

As always, PLEASE make sure you read and understand the fine print. It wouldn't be taxes in America otherwise!

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