Hi. I have two kids, two grades apart. So, if they take the path of 4-year college straight out of HS, I will have:
- one in college for two years.
- both in college for the next two years.
- younger one in college the following two years.
Was reading about the AOTC. We have 529s for each child that will about cover the cost of college.
1. I read it is not fully refundable. i.e. if your taxes are less than $2500, at most $1k will be refunded. e.g. if you taxes are $0, then it would be worth $1k to you. What about when you have two kids qualifying in the same year? i.e. with zero taxes, is it at most $1k per kids or $1k total?
2. Read that the expenses used to qualify for the AOTC cannot be expenses that are used for zero tax 529 withdrawals. The example I saw wasn't complete. It seems that if my 529s cover all college expenses that I would not be able to use the AOTC, and perhaps should choose to leave some $$ in the 529s for grad school or to cover a different beneficiary.
So, if college expenses for one child are $15k in a tax year and I use $11k from 529 and $4k from other, then the child would qualify. Is it as simple as "to get full benefit, at least $4k of expenses must not come from a 529"?.
3. Also, does it matter how much of the 529 balance was contributions vs. investment earnings? Seems possible that the amount coming from the 529 that limits the AOTC should only be the investment earnings. i.e. one whose balance is 50/50 contributions/earnings would be more limited than one who is 80/20 contributions/earnings.
Thanks.