Reaching Your College Savings Goal: $4,000 Is Not A Cap
Some account owners stop contributing at or around $4,000 annually, per beneficiary account. Are you doing this, too? Are you doing so because you thought contributions were capped at $4,000 a year?
If you are, you are not alone! This is a common misperception that we work hard to dispel.
You are allowed to DEDUCT contributions up to $4,000 from your Ohio taxable income per beneficiary, per year. But, you are allowed to CONTRIBUTE even more!* Contributions over $4,000 per beneficiary, per year, may be carried forward to deduct from future tax years until all of your contributions are fully deducted.
With more than 75% of CollegeAdvantage Direct Plan assets being held by Ohio taxpayers, we understand that many account owners are trying to maximize the annual Ohio income tax deduction amount. While it’s good to maximize your deduction, make sure you define your savings goals so that you don’t stop short of your goal each year. If you’re trying to pay for all or most of your child’s future college expenses, saving $2,000 per year might leave you short of your goal when it comes time for college.
To help you, we encourage you to set a college savings goal that fits your household budget, covers the portion of costs you hope to pay, and takes into account your time horizon. If your child just started kindergarten, you have more time to save even more. If your child is middle or high school, you may want to accelerate your savings. Even if your child is in college already, you can still save and take advantage of tax-free earnings (which helps you save even more) and you can maximize the Ohio tax deduction, too.
If you haven’t set or recently re-evaluated your college savings goals, you might want to take a few minutes to visit the Planning Tools page on our website. You can set that college savings goal, compare long-term tax benefits, or even see the cost of waiting to save. Whatever the amount you are able to dedicate to college savings, if you are an Ohio taxpayer you will enjoy tax-free growth and a deduction from your Ohio taxable income by choosing to save with CollegeAdvantage. And, if you’ve made it this far and don’t already have a CollegeAdvantage Direct account, today’s a great day to open an account!
We also have other tools available in the CollegeAdvantage Direct 529 Savings Plan to help you and your family reach your college savings goals:
- Ugift® – Family and friends often look for significant, meaningful ways to celebrate holidays, birthdays, graduations, and other special occasions. With the CollegeAdvantage Direct Plan, you can get a unique Ugift code for each of your beneficiaries. The code can be shared with family and friends to allow them to make lasting gifts to your child’s college savings account. Without ever sharing your account number or your child’s social security number, anyone can contribute securely online at Ugift529.com. Learn more about receiving gifts.
- AIP – We offer the Automatic Investment Plan (AIP) so that you can make savings an easy habit. AIP allows you to make automatic, regular contributions from any bank account. Just log in to your Direct Plan account and select “Automatic Investments” under Asset Management in the menu. Many account owners use this plan to set money aside before they have a chance to spend it on something else.
*You can make contributions at any time that such contributions will not cause your account value to exceed the Account Limit for Contributions (formerly Maximum Account Value) as described in the CollegeAdvantage Direct Plan Offering Statement and Participation Agreement. As of Jan. 1, 2012, the Account Limit for Contributions will be $517,000.
This article was originally posted in December 2018 and has been updated to reflect new information for 2022.
Posted on December 07, 2016