September is College Savings Month and you may be hearing more and more about 529 plans throughout the month. Have you also heard these tax-advantaged plans referred to as beneficiary accounts? There are a lot of terms to understand when entering in the financial world. If you want to learn more in order to save for your child’s future higher education, Ohio’s 529 Plan, CollegeAdvantage, would like to share some basic concepts to know about 529 plans.
529 plans can also be called a beneficiary account because when an account owner opens a 529 account, they must select a beneficiary for whom all the funds will be used to cover their qualified higher education expenses. Any U.S. citizen or resident alien of any age with a Social Security Number can be named as the beneficiary of an account. The account owner can designate a child, adult, or even his or herself as the beneficiary. There can only be one beneficiary per 529 account.
Tax advantages of 529 plans
When Congress created these college savings plans with the Internal Revenue Code (IRC) Section 529, it gave these plans special tax advantages to help families save for their children’s higher education such as:
- Tax-free earnings so all investment growth is yours to use. Compound interest — the interest earned on contributions, earnings, and interest already accumulated in the 529 account — is included in the tax-free earnings. Tax-free growth can really add up in a 529 savings plan;
- Tax-free withdrawals for qualified higher education expenses, which are those required costs for attendance at the school. These expenses include tuition; room and board (on and off campus) when the beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment related to enrollment and classes; and certain expenses for a special-needs student; and
- State income tax credits or deductions. With Ohio’s 529 Plan, any Ohioan who contributes to a CollegeAdvantage 529 account can deduct up to $4,000 per year, per beneficiary. With unlimited carry forward, you can continue to subtract 529 contributions from your state income tax in future years until all contributions have been deducted. Any loved ones who are Ohio residents can also take this deduction if they contribute to your child’s Ohio 529 account.
529 plans aren’t just for four-year programs
You can use the funds in your 529 plan almost anywhere you are comfortable sending your child and your money. 529 plans can be used at any federally accredited educational institution, which is a post-secondary school that accepts federal financial aid. If you want to confirm that the schools your child is interested in attending — whether vocational, two-year, four-year or graduate — accepts federal aid, then do a search to see if the institutions have a Federal School Code on the Free Application for Federal Student Aid (FAFSA). If the schools do, then you can use your 529 funds there.
529 plans can be used nationwide
While you’re saving with Ohio’s 529 Plan, you can use your funds at both Ohio schools and schools across the nation. 529 plans can be used across the United States at any accredited post-secondary school that accepts federal financial aid. If it does, then you can use your 529 plan there.
If you would like to learn more about Ohio’s 529 Plan to save for your children’s future higher education, please visit our website. While there, use our tools and calculators to create the 529 investment plan that’s right for your family. Use the College Savings Estimator to analyze what the cost might be for your child’s higher education, then set goals for how much you want to save toward the total expense. If you’ve started to save for college in a regular savings account, work with the Tax Benefit Tool to see how tax-free growth in a 529 plan really adds up. And if you haven’t started to save yet, the Cost Of Delaying Savings Tool can illustrate the advantages of saving early with the power of compound interest growing in the 529 account.
Start saving for future higher education expenses by open your tax-advantaged Ohio’s 529 Plan today at CollegeAdvantage! Someday your child is going to college. Someday starts with Ohio’s 529 Plan, CollegeAdvantage.