On a regular basis, many parents reach out to me regarding concerns about how they are going to pay for college. With the costs of higher education skyrocketing, it is a very legitimate concern. Thankfully, the IRS does provide some relief for burdened parents.

Before asking yourself if there are any available tax breaks to help lighten the load of your child’s education, take the necessary time to evaluate all the options available and consult a professional to determine the most advantageous route. Be aware that you can only receive one type of relief for one item, but there are many different ways to take advantage of tax breaks associated with your child’s higher education.

  1. There are two types of education tax credit.

You must make a choice between two types of education tax credit. The first type of credit is the American Opportunity Tax Credit. If your child is enrolled full-time, then this credit applies to the first four years of college. The second type of credit is the Lifetime Learning Credit. This option applies for as long as the student studies, however the percentage of savings per year decreases drastically.

  1. Understand the Coverdell ESA (Section 530) & how to use it to your benefit.

A Coverdell ESA (Education Savings Account) is also known as an Education IRA. It is important to understand what makes an Education IRA different than a standard IRA. With a Coverdell ESA, withdrawals are not taxed if used for qualified education expenses. Contributions made into an ESA are not tax deductible and can be made only up until the client reaches age 18. These funds then must be distributed by the time that client reaches age 30.

It is possible to have multiple Coverdell 530 accounts for the same student. Each account must be opened by different family members/friends, but there is no limit to the number of people that can open these accounts for your qualified child.

Many things can happen along the way to preparing for your children’s higher education, and we don’t always have the luxury of planning ahead. Often times, a child decides against going to college, is granted a scholarship, or some other occurrence disrupts the financial plan made for their future education. In the event of such circumstances, an Education IRA allows for the account to be transferred to another family member at any time so the money that has been saved can still be utilized.

  1. Qualified Tuition Programs or “529 Plans” through Educational Institutions

The Section 529 Qualified Tuition Program is a college savings program available at most educational institutions, in most states. These QTPs allow you to either prepay or contribute to an account that has been established for paying a student’s qualified education expenses.

Money is invested to cover the costs of future education where these investments grow tax free. The distributions may also be tax-free depending on the education expenses. Taxes are incurred when the distribution amount is greater than the beneficiary’s adjusted qualified education expenses. Even if a QTP is used to finance a student’s education, the student or the student’s parents still may be eligible to claim the American opportunity credit or the lifetime learning credit.

  1. Using Money from your Traditional or Roth IRA to Fund your Child’s Education.

Taking distributions from your IRAs for your child’s qualifying education expenses allows you to bypass the 10% additional tax penalty. There is a chance you may owe income tax on at least part of the amount distributed, but not the additional 10% penalty. You can qualify for this tax exception only when the amount of the distribution is less than the education expense.

  1. College Education & Student Loan Interest Deductions

There is a limited deduction allowed for higher education and related expenses. In addition, business expense deductions are allowed. There is no limit to the dollar amount of business expenses deductions when made for education related to the taxpayer’s business, including employment.

In certain instances student loan interest is deductible. Although deductions need to adhere to a few guidelines, the deduction is also subject to income phase outs, which is when your eligibility to contribute to a tax-advantaged retirement account as you approach a specified income limit gradually reduces. The student loan interest deduction ceiling is $2,500, however you are unable to claim this deduction if you are a dependent. Only the person liable for the debt is eligible for this deduction and the loan must be purely for education.

Some cases also allow you to deduct for education expenses pertaining to the workplace. If you are receiving education to maintain or improve skills at your current job, then you may apply for this deduction. Alternatively, you will not qualify if your education is to meet the minimum requirements of a job.

Joshua Zimmelman is the owner of Westwood Tax & Consulting. As a contributor for Jewish Image Magazine, Joshua regularly provides resource guides on how to manage personal finances, take advantage of tax exemptions, and small business guidance. You can read more about Joshua and Westwood Tax & Consulting at: http://www.westwoodtax.com