Saving For College In Tough Times

This article was originally published on Fifth Third's blog page on May 19, 2020.

As we come together to find our way through the current COVID-19 troubles, it takes a singular focus to conquer obstacles that lie ahead.

You need stay focused on your goals, too. If one of them is saving for your children’s higher education, you have to look beyond the current challenging financial market to see the future you’re building for them. Saving for higher education takes a forward-looking action plan and it’s best to stay the course you’ve already laid out.

Hopefully, your strategy includes a 529 plan for your higher education savings. In honor of 529 Day (May 29), here’s are some of the many advantages of saving in a 529 plan which will benefit you and your child in the long run.

The advantage of tax benefits

529 plans should be a critical component to your long-term savings strategy. These specialized accounts offer tax benefits to grow your savings even more. These advantages include tax-free earnings, so every dollar accrued is yours to cover college costs, and tax-free withdrawals for qualified higher education expenses. These are the mandatory costs to attend a higher education institution such as tuition; room and board; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment related to enrollment and class schedule; and certain expenses for a special-needs student. Apprenticeships costs — fees, textbooks, supplies, and equipment, including required trade tools— can also be paid with a 529 plan withdrawal. The apprenticeship program must be registered with the Secretary of Labor’s National Apprenticeships Act in order to use a 529 plan withdrawal.

There is also a tax benefit for Ohio residents who saves in Ohio’s 529 Plan, CollegeAdvantage, you can deduct up to $4,000 per year, per beneficiary, from your state income taxes for matching contributions to your Ohio 529, 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, in future years you can continue to subtract $4,000 per year, per beneficiary, from your State of Ohio taxable income until all Ohio 529 contributions are deducted.

The advantage of starting early

Another key component for growth in any savings account is time. Time goes hand in hand with compound interest as dynamic drivers in a 529 account. For a 529 college savings plan, the compound interest is accrued not just on the original contribution but every continuing contribution, all the earnings from the 529 investment options, and the already accumulated interest.

The longer you have to save before you need the funds in a 529 account, the longer your savings have a chance to grow with compound interest. That’s why it’s best to start saving as early as possible for a future higher education. Saving early in your child’s life creates a good foundation from which the 529 account can grow for years to come. You can even start a 529 plan before your child is born to have family members and loved ones can give a gift of a higher education to the child’s 529 plan as a baby shower gift.

By saving early, you establish good savings habits that you can carry through to building your emergency fund and retirement. It also shows your child that you believe in them and their amazing future life, which they can obtain through their higher education. Research from the Institute for Higher Education Policy shows that when a child know that there are college savings for them, they know that they are expected to go to college. In fact, children with $1-$499 in college savings are three times more likely to attend college and four times more likely to graduate than those with no savings.

The advantage of automatic contributions

Life will always throw curve balls at you. One way not to get distracted and forget to set aside your savings is to set up automatic contributions. By consistently saving, you can set it, forget it, and move to all the other items on your to-do list. You are also taking advantage of savings strategy called dollar-cost averaging. When you contribute consistently to an investment, you will buy shares both when their prices are higher and when they are lower. During a volatile time like this, your dollars can purchase more shares while the market is down. This process can allow you to end up with more shares of these investments at a reduced cost. When the stock market stabilizes, you will likely have more in your 529 plan that is ready to grow.

The advantage of age-based investment options

For Ohio’s 529 Plan, many families choose to save with age-based investment options. An age-based 529 portfolio creates an asset allocation mix based on age bands. When the beneficiary is young, there are more equities found in the portfolio. As the beneficiary grows older, the mix adjusts to reduce the amount of equity and increase the amount of more conservative investments such as fixed-income options and cash preservation options, which are offered by Fifth Third Bank.

If your family is closer to need the 529 account to cover college costs, an age-based portfolio has transitioned over time to more conservative, cash preservation funds instead of equities. This can help minimize the impact of market volatility on the bottom line of the 529 account. If your beneficiary is young, while age-based options do contain more equities, your account will have time to rebound as markets recover.

The advantage of saving here but using your 529 plan anywhere

529 plans can be used nationwide at traditional four-year colleges or universities, as well as two-year community colleges, trade or vocational schools, and certificate programs. Your child can attend any higher education institution nationwide that accepts federal financial aid. The quickest way to confirm this is to see if the school has a Federal School Code on the Free Application for Federal Student Aid (FAFSA). Also, with the passage of SECURE Act, 529s can now be used to pay for certain qualified costs for U.S. Department of Labor accredited apprenticeship programs, which have been accredited by the U.S. Department of Labor.

These are only some of the many reasons to save in a tax-free 529 account. Ohio’s 529 college savings plan is a simple way to save for any higher education goal and it’s accepted nationwide. There is no fee to open an Ohio 529 Plan; the minimum contribution is $25. If you’d like to do more research, explore Ohio’s 529 Plan — The Plan That Can — at  CollegeAdvantage.

Tim Gorrell is the executive director of Ohio Tuition Trust Authority. For more than 33 years, Ohio Tuition Trust Authority has sponsored and administered Ohio’s 529 Plan, CollegeAdvantage. Visit CollegeAdvantage.com or call 1-800-AFFORD-IT (233-6734) for more information.

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529 Short Course: New Parents

5 things every new parent needs to know about saving for education

  1. Why Ohio 529?
    529s are specifically created for higher education savings. Unlike a traditional banking account, a 529 account benefits from tax-free earnings and tax-free withdrawals. For Ohio residents, there is also a state income tax deduction for those contributions.
  2. It’s simple to start.
    You can open your 529 account online in minutes with as little as $25. With ready-made portfolio options, you don’t have to be a financial expert to feel confident in your savings plan choices.
  3. Set it and forget it with automatic deposits.
    The sooner you start saving, the longer your account benefits from the Ohio 529 tax advantages as well as compound interest. Many new parents take their 529 contributions off their to-do list by setting up small automatic deposits from either their banking accounts or paycheck. Also, with our ReadySave 529 app, it’s also easy to track and adjust your account right on your mobile device.
  4. Save for college, career training, and more.
    Ohio 529 can be used at over 30,000 schools of all kinds, nationwide, including universities; community colleges; trade, technical, and vocational schools; certificate programs; and apprenticeships. Your Ohio 529 account can also pay for K-12 tuition at a public, private, or religious school. And, if it’s not needed for educational expenses, you can now roll over your 529 to a Roth IRA.
  5. Others can help.
    It’s easy for family and friends to contribute to your child’s account and receive tax benefits for themselves. You can share your account’s unique Ugift number with others to contribute online without creating their own 529 accounts. Those who live in Ohio will also receive a state income tax deduction for their contributions. Also, you can sign up to have reminder emails sent to you and loved ones for the big milestones in your child’s life.

Hoping to find gold at the end of the rainbow? If you are saving with Ohio 529 CollegeAdvantage, you have the benefit of Ugift with your account, which is savings gold.

Ugift makes it easy for others to give to your Ohio 529 account. With Ugift, you generate a unique code which allows loved ones to contribute to your Ohio 529 savings plan without needing the actual account number. Once they have the Ugift code, your friends and family can visit Ugift529.com to make their online gifts directly to your 529.

When friends and family ask for gift ideas, share that you are saving for your child’s future education with Ohio 529. Then invite them to join in with gift contributions to your Ohio 529 account with Ugift. After all, a gift for your child’s education will truly last a lifetime.

The quickest and easiest way to pass along your child’s Ugift code is with the ReadySave 529 app, which you can access as an Ohio 529 CollegeAdvantage account owner. At the bottom of every page is an Ugift icon. Click on the gift symbol to view your Ugift code which you can send immediately as an invitation via texts, emails, and Facebook/Instagram chats from your phone.

Or log into your account online to view your child’s Ugift code to send to family and friends who would like to give the gift of education.

The Ugift code doesn’t expire. Which means whenever there is an occasion to celebrate­ like baby showers, holidays, birthdays, graduations, and special achievements, your family and friends can give to your Ohio 529 account. And they can choose to contribute as much as they want whenever they want. It can be a one-time gift or recurring gift; all they need is that Ugift code. Your loved ones’ contributions - whether big or small – will add up over the years. Added to the power of compound interest, these gifts will power your 529 savings to cover even more college and career training costs.

An added bonus for gift givers who live in Ohio: They are also eligible to receive a state income tax deduction for their Ohio 529 gift contributions, up to $4,000 per year, per beneficiary.

To learn more about all of the gifting options with Ohio 529 and order cards for special occasions, visit  529 Gift Central.

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