Ohio’s 529 Plan Is Your Solution To Student Loan Debt
While driving, have you seen the bumper sticker that proclaims, “My kid and my money to go (insert the name of school here)?” Does it make you smile or does it make your heart beat a little quicker? Whether college is right around the corner or you’re still dealing with diapers, Ohio’s 529 Plan — CollegeAdvantage — is here to help you save for your child’s future college costs.
“The credit card debt in the US has reached $1 trillion whereas the student loan debt stands at $1.4 trillion and growing. This is alarming and action must be taken to reverse the direction of student loan debt,” said Tim Gorrell, executive director of Ohio’s 529 Plan. “Planning for whatever comes after high school - college, trade school, technical school, etc. - and participating in a sound savings and investment plan will make these goals a reality. Going into a new career debt free should be the norm as opposed to entering the workforce with years of debt repayment ahead.”
Ohio’s 529 Plan is your solution to student loan debt. The recent news about Ohio’s student loan indebtedness may be disconcerting but forward-thinking parents can make college doable with Ohio’s 529 Plan, CollegeAdvantage. Here’s how:
529 Plan Tax Benefits
529 accounts are tax-advantaged college savings plans. What are these tax benefits?
- Tax-free earnings. A regular savings account will have taxes assessed yearly but a 529 investment plan grows tax-free at the federal and state level. To see how tax-free growth adds up with a 529 savings plan, use the tax benefit tool to show the savings in taxes between a 529 to a taxable account. Unlike a taxable account, a CollegeAdvantage 529 plan ensures that every bit of investment growth is yours to use, tax-free.
- Tax-free withdrawals. Funds withdrawn from 529 plans are tax free when used for qualified higher education expenses. What are these expenses? Costs that are necessary for enrollment or attendance at an eligible education institution like: tuition, mandatory fees, computer equipment and related technology and services, books, supplies, and equipment required for enrollment or attendance; room and board costs or off-campus housing during any academic period in which the beneficiary is enrolled at least half-time; and certain expenses for a special-needs student.
- State income tax deduction for contributions to Ohio’s 529 Plan. As a resident of Ohio, you can currently deduct 529 contributions up to $4,000 per beneficiary, per year from your state income tax. However, with unlimited carry forward you can continue to deduct a large 529 plan contribution from your state income tax until all of it has been deducted. For instance, if you contribute $12,000 to your beneficiary’s account, you can deduct $4,000 from your state income tax for the next three years.
Many 529 Investment Options
The CollegeAdvantage Direct Plan offers a variety of investment options. Before creating your asset allocation strategy, fill out the online risk tolerance questionnaire to determine your investment profile. You can also use our tools and calculators to determine your savings goals. After reviewing this information, you can start to build a 529 investment portfolio that best fits your family’s needs. The CollegeAdvantage Direct Plan offers ready-made, age-based or ready-made, risk-based portfolios; individual investment vehicles; and 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 investment options. Fifth Third recently increased the annual percentage yield on two terms of the 529 Certificates of Deposits (CDs) offered through Ohio’s 529 Plan.
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 research on 529 plans, financial aid, and scholarships as well as analyzes and rank the performance of the nation’s 529 plans on a quarterly basis. Ohio’s 529 Plan, CollegeAdvantage, consistently receives high marks for its long-term investment performance.
As of June 30, 2017, CollegeAdvantage Direct 529 Plan is again ranked first across the nation for the best performance in five-year category. The Direct Plan ranked fourth overall in the nation in the three-year performance. In the ten-year performance category, the Direct Plan is now ranked second across the nation.
Morningstar also highly regards CollegeAdvantage, giving Ohio’s 529 Direct Plan a silver ranking in 2016, making it one of the top 13 529 plans out of 63 reviewed. According to their analyst’s report, “Thanks to low fees and an impressive investment lineup, Ohio's direct-sold CollegeAdvantage plan remains a top choice for residents and nonresidents alike.” Additionally, the report states, “Results generally look attractive, with the majority of plan options earning 4 or 5 star ratings. Tax benefits create further incentive for Ohioans, as contributors can deduct up to $2,000 per beneficiary from their taxable income. The plethora of options may also appeal to out of state do-it-yourselfers.”
The Gift That Keeps On Giving – Compound Interest
It’s never too late or too early to save for your child’s future college costs. However, if you set aside college savings in a 529 plan early in your 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; yet, compound interest with student loans is a huge disadvantage. This is 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.
Ohio’s 529 Plan Can Be Used Nationwide
Saving for college in Ohio’s 529 Plan does not mean your child is limited to only attending Ohio schools. 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.
Get To Know Ohio’s 529 Plan
For more than 25 years, Ohio Tuition Trust Authority (OTTA) has been helping families save for college. OTTA is the state agency that sponsors Ohio’s 529 program, CollegeAdvantage. Currently, Ohio’s 529 Plan is the sixth largest college savings program in the nation. With assets under management valued over is $11.3 billion, Ohio’s 529 Plan has been entrusted with 636,000 college savings accounts.
No matter the age of your child, CollegeAdvantage is how forward-thinking parents make college doable. Use our online tools and calculators to build the 529 plan that suits your family’s needs. Start your tax-advantaged college savings plan today at CollegeAdvantage.com. And remember, Ohio’s 529 Plan is the solution to student loan debt.
Posted on September 13, 2017