College tuition tax break loophole

The Post and Courier

Who wouldn't want a 7 percent rebate on college tuition, room and board?

Using a loophole in South Carolina's Future Scholar 529 College Savings Plan, state residents can deposit money for as little time as it takes for a check to clear, then withdraw the funds and claim the entire amount as a state income tax deduction.

It's all legal, as long as the money is spent on higher education costs, but the state never intended for the plan to be used that way.

The state tax deduction was meant to encourage long-term investments for higher education expenses, but South Carolina's Future Scholar plan allows funds to be withdrawn immediately and without penalty.

For someone facing a $10,000 bill for tuition, or room and board, the tax break would mean a savings of $700. Over the course of four years of college, the tax break could be worth thousands of dollars.

The state's income tax rate is 7 percent, on all income over $11,100.

"You could call this one of the last true tax loopholes," said DeAnna Moss, tax manager at the financial advisory firm Dixon Hughes, in Charleston.

Read more in tomorrow's editions of The Post and Courier.