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529 Tips

Save For College Before Your Child Is Born

We hear congratulations are due! What an exciting time for your growing family! As you’re waiting for your bundle of joy to arrive, there are steps you can take right now to secure their future, saving for their college costs in a 529 plan. Ohio’s 529 Plan, CollegeAdvantage, is here to help you reach your savings goal.

Open A 529 Account Before Their Birth

Did you know that you can establish a 529 college savings plan for your child before they’re even born? It’s simple. Every 529 account has an account owner, usually a parent, and the beneficiary, usually the child. To be named as the beneficiary, your child must have a Social Security number. Until that time, you can open a 529 plan and designate yourself as the owner and beneficiary. This way, you can contribute to your child’s future college plans before they even arrive. Once you have your baby’s Social Security number, you can easily change the account to make them the beneficiary.

Baby Showers: Ask For The Gift Of College

There will be many showers to celebrate the impending arrival for your baby. And there are many items you will need for your child. However, why not ask for the gift of college at these festivities? Loved ones want to give presents that have significance and what gift can last longer than a college education or technical training? A 529 gift contribution lasts a lifetime.

Ohio’s 529 Plan has teamed up with Ugift to make receiving gift contributions simple. As the account owner of a CollegeAdvantage Direct 529 Plan, you can request a unique Ugift code, which allows the gift givers to donate online directly to your 529 plan without needing the account number. Gift givers use the Ugift code to contribute to the account at any time and as many times as they like.

If the gift giver would prefer to write a check, make sure it’s payable to Ohio Tuition Trust Authority (the state agency which administers CollegeAdvantage) and includes your child’s CollegeAdvantage Direct Plan 11-digit account number.

What if a loved one wants to jump-start your child’s college fund? Per federal 529 laws, an individual can give up to $15,000 or a married couple give $30,000 to each child annually without triggering a federal gift tax. Single filers can also make a one-time $75,000 contribution and married couples can give $150,000 per child to take advantage of five-year’s worth of tax-free gifts at one time. For more information, have them talk with their tax adviser or estate-planning attorney.

Ohio gift givers also receive a tax break. For Ohio residents, contributions to CollegeAdvantage can be deducted from their Ohio taxable income in any amount up to $4,000 per year, per beneficiary, with unlimited carry forward. Therefore, their gift of college savings not only helps your child but it can help them, too.

Necessary Nesting Needs For Your Newborn

Car seats. Cribs. Baby bouncers. Baby clothes. Bottles. Baby shampoo. Diapers. Oh so many diapers. And the list goes on and on. When you are starting to buy all the needed items for your baby, shop with Upromise, a free loyalty program that offers its members cash back for their purchases from a wide variety of businesses. Participating partners include online stores and restaurants from which Upromise members can earn cash back.

When you connect your debit and/or credit card to your Upromise account, you can start earning rewards with your everyday shopping. By linking your Upromise account to your CollegeAdvantage Direct 529 Plan account, you can roll over these rebates to build up your 529 plan.

Would you like to see how others used Upromise? Read this Saving Story from a CollegeAdvantage family who used it to add to their 529 savings.

Compound Interest

One of the reason to start a 529 college savings fund as early as possible for your child is to take full advantage of the power of compound interest. Compound interest is interest gained on contributions, earnings, and interest already accumulated in the 529 account. It’s one of the most dynamic tool to grow a 529 plan. The longer a college savings plan has time to develop, the longer compound interest can add the 529 account. Also, one of the tax benefit of investing in a 529 plan is tax-free earnings so every dollar of investment growth is yours to use, tax-free.

While compound interest in a 529 college saving plan is a huge advantage, 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 your child’s post-secondary education or training is far cheaper than paying off student loans debt later in life.

The Cost Of Waiting To Save For College

Compound interest is essential for account growth; this is why we encourage you to start saving as soon as possible. However, it is never too late or too soon to start saving for your child’s future college cost. Ohio’s 529 Plan is here to help wherever you are on the saving path. CollegeAdvantage offer a Cost Of Waiting Tool, which can show what a difference saving early can make to the account.

Long-Term 529 Investment Performance

Another crucial component for growth in a 529 college savings account is its long-term investment performance. Savingforcollege.com provides unbiased 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.”

Age-Based 529 Investment Options

CollegeAdvantage offer 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. This investment option is simple to use for each portfolio’s asset mix and allocations are pre-determined. Additionally, risk is automatically reduced as your child gets closer to college age.

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.

529 Plan Tax Benefits

So why use 529 plans to save for college? These accounts offer tax advantages other savings options don’t have, such as:

  • 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.
  • Tax-free withdrawals. Funds withdrawn from 529 plans are tax free when used for qualified higher education expenses — the necessary costs for enrollment or attendance at an eligible education institution like: tuition, mandatory fees, computer equipment to name a few.
  • State income tax deduction for contributions to Ohio’s 529 Plan. Effective Jan.1, 2018, Ohio residents can currently deduct 529 contributions up to $4,000 per beneficiary, per year from their state income tax. However, with unlimited carry forward, Ohio residents can continue to deduct a large 529 plan contribution from their state income tax until all of it has been deducted. For instance, if they contribute $12,000 to your beneficiary’s account, they can deduct $4,000 from their state income tax for the next three years.

Ohio’s 529 Plan Can Be Used Nationwide

And don’t worry; you don’t need to know where your baby will want to go to college when you’re using Ohio’s 529 College Savings Plan. CollegeAdvantage 529 account can be used at any two-year, four-year, graduate or technical schools nationwide (even some overseas) that accepts federal financial aid.

Open a CollegeAdvantage before your child is born to plan to save for their future training and education. This way, the college savings account can grow from the maximum impact of compound interest and 529 tax advantages. 529 accounts are an excellent alternative to student loan debt. CollegeAdvantage is your plan, your way. 

Posted on April 27, 2018

Ohio Tuition Trust Authority

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