Qualified Higher Education Expense

The IRS provides three tax incentives with respect to qualified higher education expenses (QHEEs). One allows you to grow savings in tax-free accounts such as a 529 Plan or Roth IRA when distributions go toward college; another makes early withdrawals of IRAs (prior to age 59 ½) exempt from the 10% early withdrawal penalty; and the other affords you deductions for QHEEs when you file annual taxes. These tax breaks are financially helpful should you decide to go back to school or want to help with a child or grandchild’s education.

In both instances, qualified higher education expenses (QHEEs) are defined the same: Tuition, fees, books, supplies and equipment (including laptops or notebooks) needed to enroll or attend a level of education beyond high school. Although capped at a certain level, room and board also qualify if the student is attending at least half-time. These expenses are important because they can determine whether or not you can exclude the interest off of a qualified savings bond from your taxable income.

The tax breaks are provided on expenses paid during semesters, trimesters, quarters or summer school during the tax year or for the first three months of the next tax year. Qualified higher education expenses must be paid by a parent, a student claimed as a dependent on a parent’s tax return or even relatives or friends. They can be paid by cash, check, credit card or money from a loan.

Those expenses that do not qualify include insurances, medical expenses and student health fees, transportation, personal living expenses or playing sports.