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All parents have big dreams for their children. Most of those plans include a college education. Forward-thinking parents look at their child’s future college costs and prepare for it by contributing to 529 college savings plan. 529 accounts are an excellent alternative to student loan debt.
Ohio 529 Savings Program is a great, tax-advantaged plan to save for those future college expenses. First, earnings are tax-free. Second, residents of Ohio will receive a deduction on their state tax income for their contributions to CollegeAdvantage 529 plans. Third, funds withdrawn from a 529 account to cover qualified higher education expenses are not taxed at the federal or state level. What are the 529-qualified higher education expenses? They are the required costs to attend a federally accredited educational institute to earn a two-year, four-year, graduate or professional degree.
529 plan qualified higher education expenses
- room and board during any academic period in which the 529 beneficiary is enrolled for at least half of the full-time academic workload according to the eligible education institution;
- mandatory fees;
- computer equipment and related technology as well as internet services;
- books, supplies and equipment related to enrollment and class schedule; and
- certain expenses for a special-needs student.
Room and board costs can also include rent for off-campus residency and groceries (non-taxable items), provided these costs are equal or less than the same room and board allowances from the accredited education institution.
What is needed for an expense to be considered qualified? If the cost is required for enrollment or attendance at a post-secondary educational institute, then it will mostly like be considered a qualified higher education expense. Tuition is a mandatory expense. Books, fees and supplies which are required for classes are considered necessary costs. Room and board — whether the 529 college savings account beneficiary is living on or off campus — is a qualified expense.
What are some of the costs which aren’t considered qualified higher education expenses? Here are a few:
Non-qualified higher education expenses
- transportation costs to and from the school;
- fees and equipment which are not required for enrollment,;
- parking tickets;
- restaurants and taxable food items; and
- library fines.
To pay for these 529-qualified costs, there are different manners to make a withdrawal from a college savings plan. The quickest and easiest will be online withdrawal request from a 529 plan to a bank account to pay to the higher learning institution with an electronic transfer from the bank account. Or the account owner can pay with a paper check once the 529 withdrawal has been deposited in their bank account. Additionally, the account owner can have the 529 plan provider issue a paper check directly to the post-secondary education institution. To learn more about making a withdrawal from a CollegeAdvantage Direct 529 plan account, please read this article. Ohio’s 529 Saving Program also has a blog which offers some tips on how to be reimbursed from a 529 account for other qualified higher education expenses. For guidance on how to avoid mistakes when making a 529 withdrawal, review this article.
As a general rule, account owners should take the 529 withdrawal within the same calendar year that the 529-qualified higher education expense has occurred. For tax purposes, the burden of proof for qualified expenses and withdrawals to pay them is on the account owner. Please retain all documentation of the qualified higher education expenses and the subsequent reimbursement or payment from a 529 plan.
Saving in a 529 plan is a tax-advantaged manner to cover required college costs. Haven’t started a college savings account? Then visit CollegeAdvantage.com to learn more about the many benefits of 529 plans. Ready to open a CollegeAdvantage Direct 529 Savings Plan Account? Then go here to begin the process. CollegeAdvantage is your plan, your way.
Posted on March 15, 2017