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SavingForCollege.com, a trusted college-savings industry resource, recently released their nationwide 529 direct plan performances for the first quarter of 2017. CollegeAdvantage Direct 529 Plan has been ranked first overall in the nation at the five-year performance category; fourth overall in three-year performance; and third overall in 10-year performance.
Long-Term 529 Investment Performance
A crucial component for growth in a 529 college savings account is its long-term investment performance. SavingForCollege.com provides researched articles on 529 plans, financial aid, scholarships, and tools to estimate college expenses. Savingforcollege.com also analyzes the performance of the nation’s 529 plans on a quarterly basis and rank them based on that performance. Ohio’s 529 Plan, CollegeAdvantage, consistently received high ranks for its long-term investment performance.
As of March 31, 2017, CollegeAdvantage Direct 529 Plan ranked first across the nation for the best performance in five-year category; the previous ranking was second. The Direct 529 plan ranked fourth overall in the nation in the three-year performance, up from sixth place. In the ten-year performance category, the Direct Plan remained at third overall.
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.
Ohio’s 529Plan, CollegeAdvantage, is proud to receive these rankings from SavingForCollege.com. 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 investment options.
Long-term investment performance is a key factor in building a 529 account. Other key elements that contribute to a 529 plan’s growth are compounded interest, 529 tax advantages, and regular contributions.
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 is the “interest computed on the sum of an original principal and accrued interest,” according to Merriam-Webster Dictionary. 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 alternative to student loan debt, which currently stands at $1.3 trillion held by 44 million borrowers in America. Saving now for post-secondary education or training 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, trade, or technical school 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.
Automatic 529 account contributions
This is a tried and true savings method. Account owners say that the easiest way to save the most is through automatic recurring contributions. This way, the funds are regularly invested in the 529 plan before there is a chance to spend it elsewhere. Automated 529 plan deposits can be aligned with paydays or a monthly contribution schedule. Just log in to the 529 account and select “Automatic Investments” from the Asset Management menu to schedule recurring contributions. Even small investments can add up to big savings over time through regular automatic contributions or payroll deduction.
Ohio’s 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 designated by a beneficiary’s life stage. When a child is a baby to toddler, it is a fantastic time to start saving for future college expenses. During kindergarten through elementary school, disappearing expenses like day care costs can be shifted to fund the 529 account. When a student has entered middle school and high school, college savings may need to be accelerated. Even if a child is getting to start or has started even college, the tax-free earnings, tax-free withdrawals, and the state tax deduction for Ohioans can still build up the 529 account.
By the way, saving for college in Ohio’s 529 plan does not mean that those funds can only be used in Ohio. 529 plans can be used nationwide (and even overseas) at any accredited two-year, four-year, graduate or professional, or any other post-secondary schools that accepts federal financial aid.
Open an Ohio 529 plan to save for future training and education. An investment in a 529 plan is an investment in your child. 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.
Posted on August 14, 2017