529 education savings plans have always been great way to set up your grandchildren for their future success. Since 1989, Ohio’s 529 Plan, CollegeAdvantage, have helped parents, grandparents, and loved ones across the nation save for their loved ones’ higher education.
There is good news for grandparents who save for their grandchildren’s future education with a 529 plan! The Ohio 529 account you own will no longer be a factor in a students’ financial aid calculations, starting with the 2024-2025 school year.
With the FAFSA (Free Application for Federal Student Aid) Simplification Act, the form to fill out for federal financial aid was completely revamped, reducing the amount of questions, streamlining the how income tax return information is added, and reworking many processes and policies.
One of those updates includes how student’s and parent’s assets are included in the federal financial aid equations. Previously, a withdrawal from a grandparent-owned 529 plan was considered an asset for the student and was counted on FAFSA at 50% of its 529 withdrawal value, which would diminish the amount of federal financial aid for the student.
Now, grandparent-owned 529 accounts will not affect their grandchild’s financial aid eligibility as its 529 plan assets and distributions will no longer be reported on FAFSA!
If you have been saving in Ohio’s 529 Plan for your grandchild’s future education, your 529 account can be used for whatever comes after high school, including career training at trade, technical and specialty schools, community colleges, certificate programs, apprenticeships, four-year universities and colleges, graduate school, law school, and med school. For example, if your grandchild chooses to further their education by attending a trade school or certificate program, you can use your 529 account to pay for qualified costs there. And your 529 plan withdrawals are tax-free when used for qualified expenses.
Other 529 tax benefits include tax-free earnings, meaning that all the investment growth is yours to use for your grandchildren’s future educational expenses. Compound interest—the interest earned on contributions, earnings, and interest already accumulated in the 529 account—is included in the tax-free earnings. To see just how tax-free growth adds up with a 529 savings plan, use the Tax Benefit Calculator to see the difference between a 529 plan account and a taxable savings account.
The third tax benefit is that any Ohio resident—whether the account owner or a gift giver—who contributes to Ohio’s 529 Plan can deduct their contributions from their taxable state income. The deduction is $4,000 per year, per beneficiary, with unlimited carry forward, which means that the $4,000 is not a contribution cap. If an Ohio taxpayer contributes more than $4,000 in one year, they can continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all Ohio 529 Plan contributions have been deducted.
For grandparents who would like to start their estate planning, the annual gifting limits are up to $18,000 as an individual and $36,000 as a married couple to each child or grandchild without triggering a federal gift tax. The 5-year election lets you jump-start their college fund and take maximum advantage of tax-free compounding. Single filers can make a one-time $90,000 contribution and married couples can give $180,000 per child. Talk with your tax advisor if this strategy is appealing.
Since 1989, Ohio’s 529 Plan has been helping families across the nation save for their children’s higher education. Ohio’s 529 Plan covers qualified costs at any four-year college or university, two-year community college, trade or vocational school, apprenticeship approved by the U.S. Labor Department, or certificate program nationwide that accepts federal financial aid. Learn, plan, and start for as little as $25 today at CollegeAdvantage.
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