Pay me in wine.

April 23, 2006 9:01 PM

Way for a student to save for college w/o being taxed?

I am going to be working for the next year or and not go to school at the same time. I would like to be able to save about half of my money for school. Is there a way to do it and not be taxed on it?

posted by the giant pill to education (6 comments total)

No.
posted by geoff. at 9:32 PM on April 23, 2006

Some more information - how old you are, where you go to college, how much money you paid in tuition in FY 2006 and are planning to pay in FY 2007 - would be helpful in answering this question, as would the amount of money you expect to make.

This site appears to have some decent information.
posted by ikkyu2 at 9:50 PM on April 23, 2006

Way to paint a broad brushstroke there, geoff.

If you are working during one academic year and going to school in the next academic year, then during a particular calendar year you will be both working *and* going to school. That means you can qualify each year for the $2000 lifetime education credit. Depending on how much you make, and depending on your other deductions and exemptions, this can work out to a significant fraction of your income being tax-free.

Also, student loan interest is fully deductible even if you take the standard deduction.
posted by Saucy Intruder at 9:50 PM on April 23, 2006

If you're under 18, you can establish a Coverdell ESA in your own name. Your contributions would be tax-free, and the money you withdrew would be tax-free as well so long as you used it for education. But you could only make contributions until you turned 18. (These accounts are really designed to let parents save money for their kids' education — hence the age limit — but there's no rule against putting money into your own ESA if you're young enough.)

If you're over 18, Saucy Intruder's got the right approach. There are big tax benefits if you earn money and pay tuition (or student loan interest) during a given tax year.
posted by nebulawindphone at 5:29 AM on April 24, 2006

Yes but you'd have to work and go to school, not within the poster's definition. He can't simply stash away money while working on the promise he'll use it for college.
posted by geoff. at 7:32 AM on April 24, 2006

I imagine you could contribute up to $4000 before taxes to a traditional IRA and withdraw it without penalty to pay qualified education expenses. It will be taxed when you withdraw. See IRS publication 590.
posted by dmo at 7:51 AM on April 25, 2006