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State Income Tax Deduction Doubles To $4,000

Saving for college in a 529 plan has many benefits; ranging from the power of compound interest, a wide variety of investment options, tax-free earnings, and tax-free withdrawals. For Ohioans saving with Ohio’s 529 Plan, there’s also a deduction from their state taxable income for contributions made to CollegeAdvantage. Since 2000, the yearly deduction has been set at a maximum of $2,000 per account but the New Year brings a big change to this Ohio tax deduction.

State Tax Deduction Doubles

Beginning on Jan. 1, 2018, the state income tax deduction for contributions made to a CollegeAdvantage 529 plan doubles from $2,000 to $4,000 per beneficiary, per year. This increase heightens the advantages of saving for college costs in Ohio’s 529 Plan.

When the State of Ohio’s biennial budget was passed by the Ohio General Assembly and signed into law by Governor Kasich, it included this expanded tax benefit for CollegeAdvantage current and future account owners residing in Ohio.

Keep in mind that as with the old deduction amount, the $4,000 deduction limit is not a contribution cap. For Ohioans who contribute over $4,000 per account, per year, they can carry forward this deduction to their Ohio adjusted gross income for subsequent tax years until all of their contributions are fully deducted.

To further explain the unlimited carry forward of the state income tax deduction, let’s use two examples. An Ohio taxpayer contributes $4,000 to two 529 accounts for each of her two children, for a total of $8,000. She could deduct a total of $8,000 from her Ohio taxable income for the year. Or, if an Ohio taxpayer contributed $8,000 to a CollegeAdvantage Direct Plan Account for one child in one year, he could deduct $4,000 from his Ohio taxable income during the current year, and also the next year.

Account Limit For Contributions Increases

The Account Limit for Contributions is limit for total value of all CollegeAdvantage Program accounts for a single beneficiary. Once this amount is reached, no additional contributions may be made to any account for this beneficiary in any plan within the CollegeAdvantage. The limit now stands at $462,000. This limit is calculated based on the sum of the current average cost of tuition and current average cost of room and board needed for seven years at the five U. S. highest-cost eligible educational institutions. This amount is adjusted annually to take into estimated future inflation and estimated account earnings.

Annual Gift Tax Exclusion Rises

Contributions to a CollegeAdvantage Direct Plan Account are generally considered completed gifts for federal tax purposes. There are no federal gift tax consequences under a certain dollar amount. On Jan. 1, 2018, the IRS raised the annual gift exclusion amount to $15,000. With this increase, a contributor may elect to treat up to $75,000 of the contributions ($150,000 for married couple) as having been made ratably over a five-year period.

Would you like to see how? Use our tools and calculators to: set your college savings goals; see the benefits of saving in a 529 plan when compared to a taxable savings account; and review how saving early as possible promotes growth in the account. Ready to open an account with Ohio’s 529 plan? Visit CollegeAdvantage online to start saving for future college expenses today. Remember, every dollar saved today is a dollar that doesn’t have to be borrowed which makes Ohio’s 529 college savings plan an excellent alternative to student loan debt.  Ohio’s 529 Plan — CollegeAdvantage — helps you with saving for college and with saving on your taxes.

Posted on January 1, 2018

Ohio Tuition Trust Authority

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