College Savings Plans and Education Tax Benefits

Tennessee's Baccalaureate Education System Trust (BEST)

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Tennessee offers two vehicles to save: The Prepaid College Tuition Plan and the Savings Plan.

Tennessee's BEST 529 Savings Plan
offers multiple investment options with varying degrees of risk and potential rates of return. Nearly anyone can set up accounts, and the earnings are tax-free when used to pay for education expenses. You can use the funds to pay educational expenses at most any college in the country, and funds not used by the designated student can be transferred to another person.

Tennessee's BEST Prepaid Tuition Plan
, introduced in 1997, is based on the average tuition inflation at Tennessee public colleges and universities. The tuition units, however, can be used anywhere in the United States. The State of Tennessee Treasury Department manages the investments to keep up with increases in state university costs. The BEST Program provides tax advantages to those saving for the future cost of higher education. Other advantages include its flexibility to use tuition units at any college or university, public or private, in the country.

Education Savings Accounts & IRA Accounts

The following may offer federal tax advantages while saving for higher education:

Coverdell Education Savings Accounts (formerly Education IRAs)
A Coverdell Education Savings Account may be opened for a named beneficiary under the age of 18 (or longer, for students with special needs). Annual contributions of $2,000 can be made into a child's IRA. Carry-back contributions--made by April 15 for the previous year--are now permitted. Contributions are not tax deductible, but they and their earnings can be withdrawn tax tree for qualified educational expenses at most K-12 or postsecondary institutions. For more information on Coverdell plans, check out IRS Publication 970, Tax Benefits for Higher Education.

Other IRA Options
A traditional Individual Retirement Account (IRA) or a Roth IRA can provide a tax-advantaged way to save for college, using the early withdrawal provisions for educational expenses. IRS Publication 590, Individual Retirement Arrangements, gives all the details on this approach to college savings.

Read more about other education-related tax savings.

Tax Benefits

Related Links

• Internal Revenue Service
• Tennessee Department of Revenue

There are both state and federal government tax benefits and credits that help make higher education affordable. You may qualify for one or more of these tax savings opportunities.

Tax-Advantaged College Savings Programs
These programs include: state tuition savings plans such as Tennessee's BEST 529 and Prepaid Tuition Plans; Coverdell Education Savings Plans; traditional IRAs and Roth IRAs. Learn more.

Education Tax Benefits
There are several education-related tax benefits available, such as the Hope Scholarship Credit, Lifetime Learning Tax Credit, Employer Education Assistance, and education-related deductions. Learn more.