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As we close out April as Financial Literacy Month, Ohio’s 529 Plan, CollegeAdvantage, answers some of the most frequently asked questions about 529 college savings plans. There’s much to consider when you’re thinking of saving for your children’s future higher education costs. Here are some facts about 529s.
What if my child doesn’t go to an Ohio school?
A 529 account can be used at any federally accredited institution nationwide. That means that while you are saving in Ohio’s 529 Plan, CollegeAdvantage, your child can choose to use those funds at an eligible institution across the U.S. If the school has a Federal School Code on the Free Application for Federal Student Aid (FAFSA), then withdrawals for the qualified higher education expenses at that school will be tax free.
What if my child doesn’t go to a four-year school?
529 plans can be used for whatever school comes after high school – whether for a two-year, four-year, graduate or professional degree, or any other post-secondary credential. This list includes community colleges, vocational or trade schools, graduate schools, and even some study-abroad programs.
What if we’re expecting financial aid?
As stated earlier, FAFSA is the form to fill out to receive federal financial aid. When filling in FAFSA, your 529 account is considered an asset. When owned by a parent, the 529 plan funds are assessed at a maximum of 5.64% of its value. For lower-income families, this percentage rate could be lower.
Federal financial aid is typically offered in the form of grants, loans or work-study. With Pell Grants, students do not have repay this aid. Work-study programs allow enrolled students to work part-time to earn money for some college costs. Federally subsidized student loans and parental loans must be repaid after college with interest. Make sure you understand what type of aid is being offered to see whether or not you will have to repay it with accrued interest.
Another reason to fill out FAFSA: Other organizations — like states, universities, colleges, and private organizations — also use it to determine what institutional scholarships or loans to offer to students interested in attending their school.
What if my child gets a scholarship?
Your Ohio’s 529 Plan account is still an important component of your college-saving strategy even if your child does earn a scholarship. Very few scholarships cover 100% of the costs. A 529 plan is perfect to pay for the other qualified expenses such as: room and board during any academic period the beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology and services; books; supplies; and equipment required for enrollment or attendance; and certain expenses for a special-needs student.
If your child does receive a full-ride scholarship, you can withdrawal the matching amount of the scholarship from your 529 plan. As this is a non-qualified withdrawal, you will have to pay taxes on the earnings portion.
What if my child doesn’t go to college?
You always have access to the money you have saved in a 529 plan. Hold onto to the account to see if your child rethinks the decision for there are no time limits using a 529 account. Let the 529 plan sit and watch the tax-free earnings continue to grow. If not, you can transfer the funds to any member of the family of your beneficiary, including yourself, without any tax consequences. You also have the option of withdrawing all the funds from your 529 plan. There will be a 10 percent federal tax penalty as well as taxes assessed on the earnings portion only of the withdrawal.
529 college savings plans
First, all earnings in a 529 plan are tax-free, so all investment growth is yours to spend on higher education costs. To see how tax-free growth can build your 529 account, use the tax benefit tool to see how the funds in a 529 grow compared to a taxable savings account.
Second, 529 plan withdrawals to pay for qualified higher education expenses are tax-free at federally accredited programs.
Third, Ohio offers deductions from taxable state income to in-state residents who contribute to the Ohio’s 529 Plan, up to $4,000 per year, per beneficiary, with unlimited carry forward. Unlimited carry forward means that $4,000 is not an annual contribution cap. As an Ohioan, if you contribute more than $4,000 in one year, you can continue to subtract $4,000 per year, per beneficiary, from your State of Ohio taxable income until all the 529 contributions are deducted.
If you need help determining how much to put aside each month to reach your college savings goal, fill in the College Savings Planner to receive personalized saving estimate. Please note that this is an example for illustrative purposes only. For additional advice, consult with your legal, financial, tax, or other advisor.
Open an Ohio 529 Plan today to start saving for your children’s future higher education costs. Every dollar saved today is a dollar that doesn’t have to be borrowed which makes a 529 college savings plan an excellent alternative to student loan debt. Someday your child is going to college. Someday begins with CollegeAdvantage.com.
Posted on April 29, 2019