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529 Tips

Save Your Green With Ohio’s 529 Plan

Is green your favorite color? Ohio’s 529 Plan, CollegeAdvantage, wants to help you hold onto more of your green, especially when you’re saving it for your children’s future higher education costs. A 529 college savings plan has many benefits that can help.

529 plan tax advantages

A considerable benefit of saving for college in a 529 plan is its tax advantages, which include tax-free earnings, tax-free withdrawals, and State of Ohio tax deduction for residents of Ohio only. These tax advantages can help you save even more of your green.

While saving in Ohio’s 529 Plan, any earnings that can build up the account will be tax-free. This means all the investment growth is yours to use for your children’s future college costs. Compound interest, which is the interest earned on contributions, earnings, and interest already accumulated in the 529 account, is included in the tax-free earnings. To see just how tax-free growth adds up with a 529 savings plan, use the tax benefit tool and immediately see the difference between a 529 plan account and a taxable savings account.

Withdrawals from a 529 plan used for qualified higher education expenses are also tax-free for federally accredited programs. These costs include tuition; room and board when your beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment needed for enrollment and classes; and certain expenses for a special-needs student. Room and board costs also include rent for off-campus residency and groceries (non-taxable items only), provided these costs are equal or less than the same room and board allowances from the accredited school. For tax purposes, the burden of proof for qualified expenses and withdrawals is placed on the account owner. Make sure to retain all documentation of your beneficiary's room and board costs and other 529-qualifed expenses.

Any Ohio resident — whether the account owner or a gift giver — who contributes to Ohio’s 529 Plan, CollegeAdvantage, can deduct their contributions from their taxable state income. Effective Jan. 1, 2018, the deduction is now $4,000 per year, per beneficiary, with unlimited carry forward. This means that $4,000 is not a contribution cap. If an Ohio taxpayer contributes more than $4,000 in one year, they can continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all Ohio 529 Plan contributions have been deducted.

Ready-made investment options

To save your green, you can tailor a 529 college savings account to your family’s needs. Ohio’s 529 Plan, CollegeAdvantage, offers a wealth of 529 investment options, from leading investment managers VanguardDimensional Fund Advisors, and Fifth Third Bank. The investments include ready-made age-based portfolios and ready-made risk-based portfolios. These ready-made investment options are simple to use for each portfolio’s asset mix and allocations are pre-determined. When your beneficiary is younger, the asset allocation mix includes more stocks. As your beneficiary grows older, the asset allocation mix adjusts to reduce the amount of equity and increase the amount of conservative investing vehicles, such as fixed-income and cash preservation options.

Not sure what investment options fit your investment personality best? Answer our risk tolerance questionnaire to determine with which asset allocation mix you would be most comfortable – conservative, moderate, or aggressive.

Also, Ohio’s 529 Plan has savings strategies to determine if you should modify your 529 college savings account based on your child’s age. If your child just started kindergarten, you have longest amount of time to save as well as benefit from the power of compound interest. If your child is in middle or high school, you may want to increase your college savings contributions.

Ease of automatic deposits

Another simple way to save your green is to set up automatic deposits to your CollegeAdvantage account. Many families find it’s best to have contributions automatically transferred to their 529 plan before the funds are used for other expenses. Electronically transferred 529 contributions can be scheduled to match paycheck deposits or to another monthly contribution schedule.

Some employers offer payroll deduction, where a portion of your paycheck can be deposited directly into a CollegeAdvantage Direct 529 account. You can log in to your account to establish payroll deduction through direct deposit or complete and mail a payroll deduction form. Please note that a Fifth Third Certificate of Deposit (CD), which requires a $500 minimum contribution to open, is not available for purchase through automatic recurring contributions or payroll deduction.

Another way to boost your 529 college savings plan is to contribute federal and state tax returns, pay raises, or bonuses to your 529 account. The average tax return is $2,697. By adding $2,700 annually to a 529 plan over 18 years, you could cover over 40% of college costs at an Ohio public university.

Save your green for higher education costs

Why save your green in Ohio’s 529 Plan? It’s far cheaper to save for college now and earn interest in an 529 account than pay off students loans with accumulated interest later. With all benefits offered with a 529 plan, your green can grow to reach your college savings goal. Ready to start with CollegeAdvantage? It’s easy to open an account online. If you already have an account and want to make some changes, log in to update account information, perform maintenance, or increase your automatic deposits. CollegeAdvantage is your plan, your way.

Posted on March 14, 2018

Ohio Tuition Trust Authority

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