Parents facing college expenses have a few new wrinkles in the tax law to consider. The benefits don't apply to all, but there is something of interest for many families.

Tax credits

The HOPE credit is available for certain tuition and fees, and it allows you to reduce taxes annually up to $1,500 per student for the first two years of college. The credit is equal to 100% of the first $1,000 of qualified expenses and 50% of the next $1,000.

The lifetime learning credit covers gives you a 20% tax credit on up to $5,000 in tuition and fees. The maximum credit is $1,000, no matter how many students in the family are eligible.

Both the Hope and lifetime learning credits start phasing out for married taxpayers with adjusted gross income (AGI) of $80,000 and for single taxpayers with AGI of $40,000.

Other education tax incentives

You may establish an education IRA with a nondeductible contribution of $500 per year per child under eighteen. Distributions from an education IRA are tax-free if they are used to pay qualified educational expenses. Also, it may be possible to transfer unused funds in one education IRA to the education IRA of another family member. Eligibility for an education IRA starts phasing out at $95,000 AGI for single taxpayers and $150,000 for marrieds.

Existing IRAs (excluding Roth IRAs) can also be a source of college funds. You may make withdrawals before age 59 1/2 without penalty for amounts paid for college or graduate school tuition, fees, books, room and board, supplies, and equipment.

Interest on Series EE bonds issued after 1989 is nontaxable when used to pay tuition and fees for you or your dependents. This tax break begins to phase out once 1999 income reaches $53,100 for singles and $79,650 for marrieds.

Most scholarships remain tax-free, nontaxable employer-paid tuition may be available, and education expenses related to your job still may be deductible.