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529 Tips

Don’t Be Afraid Of 529s

Don't Be Afraid of Saving for College!

It’s that time of year for haunted houses and scary delights. But here at CollegeAdvantage, we’re hoping to use the occasion to scare away your fears of starting a 529 plan to save for college for your children. Here’s our list of five spooky thoughts that people have about CollegeAdvantage 529s and the antidotes for overcoming your fears:

1.     I don’t have extra money for savings.

This is a frightful one for most of us. Many CollegeAdvantage account owners face budget challenges, but they find personal ways to put even a little aside each month.  Instead of suggestions about carving little expenses or slashing $4 coffee drinks and packing your lunches, let us offer some different potions to try:

AIP- Successful college savers save regularly. Our Automatic Investment Plan (AIP) is used by many of our account owners to ensure they are contributing regularly, no matter the amounts, to their children’s CollegeAdvantage accounts. Even if you’re putting away the smallest amount ($25 transaction minimum per investment option), it can soon add up thanks to investment earnings and the accumulation of regular contributions1.

Gifting- It really does “take a village” to send a young person to college, so why not use this maxim to your advantage. Ask grandparents and other family members to contribute to your child’s college fund instead of, or along with, other gifts. Holidays, birthdays and school achievement milestones are perfect occasions to give to their CollegeAdvantage 529 accounts. Plus Ugift®; makes it so easy: easy for you to ask and easy for them to gift.

Disappearing expenses- One of the biggest reliefs in parents’ financial lives is when their children move from daycare into kindergarten. If you have a young child, you know that daycare can be a large expense. Many people transition all or a portion of their former daycare expenses into regular contributions to their CollegeAdvantage 529s. Other expenses that might disappear include paying off a car or your own student loans. Many account owners also use a portion of an annual raise or bonus, or even their tax refunds toward their CollegeAdvantage 529 contributions.

2.     My child (or grandchild) may not go to a college in Ohio.

No worries! This is an enduring myth about CollegeAdvantage 529. The truth is, the beneficiary of your account can attend any higher educational institution in the nation that’s recognized by the federal government as being eligible to receive financial aid for students. So whether it’s graduate school at an Ivy League university in the northeast or a technical school in Hawaii, as long as the school is eligible for federal financial aid, your CollegeAdvantage 529 savings can be used for qualified expenses at such schools.

3.     Won’t my CollegeAdvantage 529 have a negative impact on my child’s financial aid eligibility?

CollegeAdvantage accounts (owned by parents) must be disclosed on your child’s Free Application for Federal Student Aid (FAFSA), BUT only 5.64% of the balance in your 529 plan counts toward your total Expected Family Contribution (EFC). Having a 529 plan for your child does not significantly impact the amount of financial aid your child may receive.

4.     What if my child doesn’t attend college right away or at all?

There is no time limit on when your adult child can use the funds in a CollegeAdvantage 529. But, if college just isn’t where your child ends up, for any reason, you have a couple of options:

A) Transfer the funds to a new beneficiary who is a member of the family of the original beneficiary. The list of who qualifies as a member of the family is quite broad2.

B) You are also able to withdraw all or part of the money, although income taxes and a 10% penalty will apply to the earnings portion of your withdrawal3.

5.     I’d rather just keep my savings all together in my mutual fund or savings account.

No other traditional savings vehicle can offer you the tax advantages that a 529 can for higher education purposes. Furthermore, if you’re an Ohio resident, you may deduct contributions up to $2,000 per beneficiary, per year from your State of Ohio taxable income, just for saving with CollegeAdvantage 529.

 

Footnotes:

1- Any investment in a CollegeAdvantage investment option, except a Fifth Third investment option, is not insured or guaranteed by the FDIC or any other government agency or other party, including the State of Ohio, Ohio Tuition Trust Authority (OTTA), or any of the mutual fund firms under contract with OTTA. Any investment in a Fifth Third investment option is insured by the FDIC, up to the limits set by the FDIC. An investment in a CollegeAdvantage mutual fund-based investment option is not a direct investment in a mutual fund itself. Except for the Fifth Third investment options, participants assume all investment risk of an investment in CollegeAdvantage, including the potential loss of principal. Regular investing does not ensure a profit or protect against a loss. The amount actually available for withdrawal will depend on the investment performance of the investment options chosen.

Participation in the CollegeAdvantage Direct 529 Savings Plan does not guarantee that contributions or the investment return on contributions, if any, will be adequate to cover the future tuition and other qualified higher education expenses, or that a beneficiary will be admitted to or permitted to continue to attend an institution of higher education.

To learn more about CollegeAdvantage, its investment objectives, risks, and costs, read the Direct Plan Offering Statement and Participation Agreement. If you are not an Ohio resident, check with your home state to learn if it offers state tax or other benefits for investing in its own 529 plan.

2- For a complete list of “Member of the Family, please see the Direct Plan Offering Statement and ​Participation Agreement.

3- Unqualified withdrawals (withdrawals not used for higher education expenses) are subject to a 10% penalty, in addition to being subject to income taxes on the earnings portion of the amount withdrawn.

Ugift is a registered service mark of Ascensus Broker Dealer Services, Inc.

Posted on October 30, 2014

Ohio Tuition Trust Authority

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