Investing in a child’s future calls for a long-range vision, especially if the one of the objectives includes a college education. 529 college savings plans are a great way to save over time in a tax-advantaged manner. No matter the age of a child, it is never too early and it is never too late to start saving for future college costs. However, the sooner the 529 account is started, the longer there is to reach college savings goals.
Long-Term 529 Investment Performance
An important component of a 529 account is its long-term investment performance when saving for future college costs. SavingForCollege.com — an industry-trusted informational website which provides researched articles on 529 plans, financial aid, scholarships, and tools to estimate college expenses — analyzed the performance of the nation’s 529 plans and ranked them. Ohio 529 Saving Plan has consistently received high ranks for its investment performance.
As of Dec. 31, 2016, College Advantage Direct 529 Plan was ranked sixth overall in the nation in the three-year performance; second overall in the five-year performance, and third overall in the 10-year performance.*
SavingForCollege.com determined the performance score by comparing seven similar asset-allocation categories between all the nation’s 529 plans, the historical performance of each selected portfolio category, and then averaging the score of all the groupings. The rankings were then based on one-year, three-year, five-year and ten-year performance scores.
Long-term investment performance is a key factor that can build a 529 account. There are other elements that can contribute to its growth.
Compound Interest – A 529 Plan Powerhouse
By setting aside college savings in a 529 plan early in a child’s life, the 529 account will benefit from compound interest through investing over the years. Compound interest is a saving powerhouse as it’s the “interest computed on the sum of an original principal and accrued interest,” according to Merriam-Webster. For 529 plans, compound interest is based on contributions, earnings, and interest already accumulated in the account.
Compound interest in a 529 college saving plan is a huge advantage; however, compound interest in student loans is a huge disadvantage. This is one of many reasons why 529 plans are a great alternate to student loan debt, which currently stands at $1.3 trillion held by 44 million borrowers in America. Saving for college now is far cheaper than paying off student loans debt later in life.
529 Plan Tax Advantages
CollegeAdvantage, Ohio’s 529 Savings Program, helps families across the nation save money for their children’s future college costs with tax-advantaged benefits. First, all contributions and earnings grow tax-free in a 529 plan. Second, when a 529 account withdrawal is requested to cover qualified higher education expenses, the amount taken out will be tax-free. Third, a CollegeAdvantage account owner who is an Ohio resident can deduct 529 contributions from their Ohio taxable income, up to $2,000 per year, per beneficiary, with unlimited carry forward. This means that $2,000 per year is not a contribution cap. The taxpayer can continue to subtract $2,000 per year, per beneficiary, from their Ohio taxable income until all the 529 contributions have been deducted.
Interested in opening an Ohio 529 plan? The CollegeAdvantage Direct Plan offers a variety of investment options — from ready-made, age-based or ready-made, risk-based portfolios; to investment vehicles to build a portfolio based on an individual’s risk tolerance, investing preferences, and savings goals; to FDIC-insured banking options. Ohio’s Direct 529 plan has partnered with leading investment managers Vanguard, Dimensional Fund Advisors, and Fifth Third Bank to provide these 529 plan investments. Similarly, CollegeAdvantage has partnered with BlackRock to offer an Advisor Plan.
Additionally, Ohio 529 Plan offers calculators and tools to build a 529 plan that best fits the account owner’s needs. The college savings planner can assess the projected college costs and provide an estimated monthly saving amount to be placed in a 529 plan to reach a saving goal. The cost of waiting tool can show approximately how much more money will need to be set aside if saving for college is postponed. Again, the earlier a 529 plan is started, the sooner the account can grow by taking advantage of compound interest. The tax benefit tool illustrates the long-term advantages of tax-free growth in a 529 plan compared to a taxable savings account. CollegeAdvantage also provides 529 account strategies by a beneficiary’s life stage: from baby to toddler, which is a fantastic time to start saving for future college expenses; kindergarten through elementary school, when disappearing expenses like day care costs can be shifted to fund the 529 account; middle school and high school, when college savings may need to be accelerated; and even college, where tax-free earnings, tax-free withdrawals, and the state tax deduction for Ohioans can still build up the 529 account.
Consider opening an Ohio 529 plan to save for future college costs. Remember, 529 accounts are an excellent alternative to student loan debt. CollegeAdvantage is your plan, your way.
* The performance data shown represents past performance, which is not a guarantee of future results.