dayman wrote:
Has anyone been putting together a gameplan from a tax perspective? I normally don't even itemize my taxes, so I am pretty amateur when it comes to tax planning. I usually just bend over and take it from the feds and the incompetent Cal gov't. Not finding much online specifically for full-time b-school, and want to make sure I don't miss out on any opportunities.
Some variables:
1) Income tax deductions/credits for school related expenses (right?)
2) 401K -> Roth IRA (involves recording income)
3) Using 401K dollars for school (really don't want to do this but an option)
4) Using Roth IRA principle dollars for school (seems like no penalties and thank god I was lazy and didn't invest it)
5) Getting a sweet refund next year and trying not to go to vegas immediately
6) Income during summer internship (hopefully not wishful thinking)
What am I missing?? (I don't own a residence, but obviously others may have those concerns)
1) You should get deductions for tuition and other required costs of attending school (books, university fees, etc.). Expenses related to housing, food or other living expenses - even if they're included in the student budget - are not deductible. Note that the deduction is for when tuition is actually paid, so you may not be able to take the full academic year's tuition on this year's taxes. The school will send you a tax form (1099-T i believe) that says how much tuition you've paid and that can be deducted. This deduction starts getting phased out at I think $60,000 in income (gotta make "the rich" pay their fair share!), although since you'll only have a partial year of income that shouldn't be a problem.
2) If you roll over a 401(k) directly into an IRA there is no tax impact since you're moving money from one tax deferred account to another. It becomes a traditional IRA though, not Roth.
3) You can't use 401(k) dollars for education (well you can but you get hit with penalties). However, I believe you can withdraw money from an IRA for education without paying penalties (you'd still pay tax on any withdrawals). So make sure you roll over your 401(k) to an IRA if you anticipate using it to pay for school. Also, make sure you check what's considered an "education expense". If you're withdrawing IRA money to pay for housing, it may not qualify and you may still get hit with penalties.
4) For a Roth IRA, since you already paid tax on the contribution, I believe you can withdraw the contribution amount without taking a tax hit. Not really sure on this one though.
A few other points:
- The good news on education related expenses is that they're not considered itemized deductions, so if you don't have enough other expenses to itemize, you can still deduct tuition *and* take your full standard deduction.
- If you're getting a scholarship that pays for more than tuition, or in return for work (i.e. grad. assistant) it may be considered taxable income.
Basically though there's not much tax planning to do. The tax bills will be smaller though for the next few years since we won't be collecting paychecks, and we'd get those tuition deductions.
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19 May 2009, 11:56
