The 1997 Taxpayer Relief Act provided students and their families with more education funding options. Parents can claim the credit if the student is listed as a dependent on their tax return. The two credits cannot be claimed in the same year with respect to the same student's tuition. As with the HOPE credit, income limits and other restrictions apply. Credits are scheduled to increase in 2003.
Withdrawals are federal income tax free for tuition and other eligible expenses.
Income limits apply. Also, if you withdraw money from a regular IRA and use it for post-high school education, you will not have to pay any withdrawal penalties, but the money withdrawn will be subject to income taxes.