529 Plan Distributions and Federal Tax Credits.

A common misperception among some financial service professionals is that an individual with a 529 plan who is paying for higher education costs should pay the first $4,000 of tuition and fees per year either out of a checking or savings account or out of a loan in order to take full advantage of the federal income tax credit or deduction and then pay the remainder out of the 529 plan. This article explains that the full amount of higher education costs can be paid out of a 529 plan and the maximum federal tax credit or deduction will still be received. [ABSTRACT FROM AUTHOR]