Back To Blog
Whether you are starting on your college saving journey or have been walking down the higher education path for a while, you should crunch numbers at different points to answer important questions. You may be asking yourself, “What dollar amount can I contribute each pay period in a 529 plan?” or “How more much college savings can I accumulate by increasing my current contribution?” You may be wondering, “How does saving in a tax-free 529 plan affect the 529’s bottom line when compared to a standard savings account?” and “What would happen if I wait a little longer to open a 529 plan?”
Ohio’s 529 Plan, CollegeAdvantage, has tools that can help. Our College Savings Planner can help you determine what dollar amount you’d like to set aside to reach your college savings goal. The Cost of Waiting Tool can show how starting early with your higher education savings can really build up, even if it’s a small contribution to start. The Tax Benefit Tool illustrates how the tax-free earnings in a 529 plan allows you to keep every dollar that grows in the account, unlike a taxable bank savings account. Lastly, when you’re ready to open an Ohio’s 529 Plan account, take the Risk Tolerance Questionnaire to determine which investment style — conservative, moderate, or aggressive — you would be most comfortable following.
College Savings Planner
If you aren’t sure where to start, the College Savings Planner is a good place to plan your next steps. With this tool, you can customize your 529 plan. First, enter your child’s name then his or her age. A current annual cost is already listed in the calculator, which is based on the expenses at a public four-year in-state Ohio higher education institution. However, you can continue to personalize this information by selecting individual schools throughout the United States where you hope your child might attend. You will need to say whether to include in-state or out-of-state tuition costs and whether or not to include room in board in these expenses with these modifications.
Next, add your planned contribution – whether it’s a monthly or yearly contribution — and your current savings balance. You can choose to stay with the auto-populated hypothetical annual rate of return or select one that fits better with your investment strategy. Lastly, you can change the percentage of the college costs you would like to provide for your child.
Then hit calculate to generate a report to see what your selected contribution level will cover at a traditional four-year school. You can choose to print out the report with the hypothetical example. Then reset the form and try a different school or different planned contribution or different percentage of cost. Keep working on the form until you find a plan that work for your family. If you choose to print the report, you have the option to generate a pdf to send to your email address. If you do this, then you can save the report and review it annually to see if you’d like to make any changes.
If you have more than one child, you can fill in a new College Savings Planner form to personalize a 529 plan and save for each child.
Cost of Waiting Tool
It’s understandable that you may want to save only when your family’s finances seem steady. However, even small contributions can grow into a large 529 account when you start saving early in your child’s life. The Cost of Waiting Tool can illustrate how a delay can cause you to save a larger amount each month to reach the college savings goals you set up with the College Saving Planner. After putting in the requested information in this tool, it will create charts to show how much extra in monthly contributions and lump-sum payments you’ll need to catch up. There’s an option to print these charts as well as save the results in a pdf to you can come back to it at a later date.
Besides, starting saving early in a 529 plan is a wise idea to benefit from the power of compound interest. This is interest accrued not only on your original 529 contribution but every contribution afterwards as well as the earnings from the 529 investment options and the already accumulated interest.
Tax Benefit Tool
If you’ve already been saving for your child’s higher education in a savings account at a bank or credit union, congratulations! You’ve made great strides in securing their future. However, you may have also discovered that you are being taxed on all earnings or interest earned in that account.
With a 529 plan, all earnings are tax free at the federal and state level so every dollar earned is yours to use for college costs. With the Tax Benefit Tool, enter the requested information to receive a chart with hypothetical illustrations of how much more money you will have in a tax-free 529 plan when compared to a taxable bank savings account.
In fact, 529 plan withdrawals are also tax free when used for qualified higher education expenses, like tuition; room and board, mandatory fees; computer equipment and related technology as well as internet services; as well as books, supplies and equipment related to enrollment and class requirements.
Again, when you go to print the report, you can download the pdf of the chart and save it as a reference.
Risk Tolerance Questionnaire
Once you are ready to open a 529 account, the Risk Tolerance Questionnaire is useful to determine your investment style. Your asset allocation strategy directly relates to how you will invest among stock, bonds, and short-term investments. As you will select which investment options to include in your 529 portfolio — ready-made age-based portfolios, ready-made risk-based options, individual options, fixed-income options, and banking options — it’s best to know how comfortable you are with risk. Risk is usually correlates to stocks and the potential for volatility in the stock market.
There are nine questions to answer — like how long you plan to hold onto the investments and what reaction you would have to a steep loss in stock market — to better understand how comfortable you are with investment risk. The tool will calculate your results to find if you lean towards being a conservative, moderate, or aggressive investor. Based on your risk tolerance, a suggested asset allocation based on your risk tolerance is proposed.
If you still aren’t sure how much risk with which you are comfortable, Ohio’s 529 Plan offers ready-made age-based portfolios. The investment options automatically reduces the amount of risk by reducing the amount of stocks in your 529 as your child gets closer to college age.
There’s a lot to consider whether you’re opening an Ohio 529 Plan account or adding to your current account. Ohio’s 529 tools and calculators can help you shape the college saving account that best fits the needs of your family. Someday your child is going to college. Someday starts at CollegeAdvantage.com.
Posted on January 8, 2020