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Question for the Money Doctors

Question submitted on Dec 11, 2013.

Question

I withdrew 60,000 from my annuity to help pay for my son''s college expenses. I have now been informed that I can''t take any of that amount as a tax credit or deduction to offset the withdrawal. Is this true, and do I have any options other than being killed on my tax return? Thanks

Answer

First, please confirm with your broker, how much of the $60,000 annuity payment will be tax-free, i.e., excluded from your taxable income. Generally, an "exclusion ratio" is calculated, and a portion of annuity payments are non-taxable. Perhaps, your tax bill won't be as bad as you suspect.

Second, you should look into the college tuition tax deductions and credits which are available based on college expenses incurred, versus the amount of the annuity withdrawn for that purpose. Please note that the education tax incentives are phased out at various levels of Adjusted Gross Income. I hope that this helps.


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