Traditional individual retirement arrangement (IRA).

Generally, if you have a traditional individual retirement arrangement and are covered under an employer retirement plan, the amount of income you can have in 2002 and still claim a deduction for a contribution to a traditional IRA is increased in most cases. The amounts vary depending on filing status. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).

Education benefits. The following benefits are specifically for education expenses. For more information on all of the following benefits, see Publication 970, Tax Benefits for Education.

Tuition and fees deduction (new deduction in 2002 for higher education expenses). You may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse, or a dependent, even if you do not itemize deductions on Schedule A, Form 1040.

Interest on student loans. You may be able to deduct as an adjustment to income interest paid on a qualified student loan. The maximum deduction is $2,500.

Hope credit. You may be able to claim a tax credit of up to $1,500 for each eligible student. A Hope credit can be claimed in the same year the beneficiary takes a taxfree distribution from a Coverdell ESA (discussed later), as long as the same expenses are not used for both benefits.

Lifetime learning credit. For qualified tuition and related expenses paid during the tax year, you may be able to claim a tax credit of up to $1,000 for all students. A lifetime learning credit can be claimed in the same year the beneficiary takes a taxfree distribution from a Coverdell ESA (discussed next), as long as the same expenses are not used for both benefits.

Coverdell ESAs (formerly education IRAs). Coverdell education savings accounts (ESAs) are not individual retirement arrangements. A designated beneficiary may take withdrawals from both a Coverdell ESA and a QTP (discussed next) in the same year, but if the total withdrawn is more than the beneficiary’s remaining qualified expenses, those expenses must be allocated between the withdrawal from the Coverdell ESA and the withdrawal from the QTP before figuring how much of each withdrawal is taxable.

Qualified tuition programs (QTPs). Qualified state tuition programs (QSTPs) have been renamed qualified tuition programs (QTPs). A QTP (also known as a 529 plan or a section 529 plan) is a program set up to allow you to either prepay a student’s tuition or contribute to a college savings account established for paying a student’s qualified higher education expenses at an eligible educational institution. A designated beneficiary may take withdrawals from both a QTP and a Coverdell ESA in the same year, but if the total withdrawn is more than the beneficiary’s remaining qualified expenses, those expenses must be allocated between the withdrawal from the QTP and the withdrawal from the Coverdell ESA before figuring how much of each withdrawal is taxable.

Employerprovided educational assistance. The taxfree status of up to $5,250 of employerprovided educational assistance benefits each year was scheduled to end for courses beginning after December 31, 2001. This benefit has been extended and, beginning in 2002, also applies to graduatelevel courses.