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Is green your favorite color? Would you like to hold onto more of it? Ohio’s 529 Plan, CollegeAdvantage, wants to help you save more green for your children’s future higher education. A 529 account has many benefits that can build your college savings account.
529 plan tax advantages
A huge benefit of saving for college in Ohio’s 529 Plan is its tax advantages, which include tax-free earnings, tax-free withdrawals, and state tax deduction for Ohio residents. These tax advantages can help you save even more of your green.
While saving in Ohio’s 529 Plan, all earnings grow tax-free. This means that all the investment growth is yours to use for your children’s future college costs. Compound interest — the interest earned on contributions, earnings, and interest already accumulated in the 529 account — is included in the tax-free earnings. To see just how tax-free growth adds up with a 529 savings plan, use the tax benefit tool to see the difference between a 529 plan account and a taxable savings account.
Withdrawals from a 529 plan used for qualified higher education expenses are also tax-free for federally accredited programs. These costs include tuition; room and board when your beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment needed for enrollment and classes; and certain expenses for a special-needs student. Room and board costs also include rent for off-campus residency and groceries (non-taxable items only), provided these costs are equal or less than the same room and board allowances from the accredited school. Certain costs for apprenticeships that are approved by U.S. Labor Department are now included as qualified higher education expenses. For tax purposes, the burden of proof for qualified expenses and withdrawals is placed on you as the account owner. Make sure to retain all documentation of your beneficiary's room and board costs and other 529-qualifed expenses.
Any Ohio resident — whether the account owner or a gift giver — who contributes to Ohio’s 529 Plan can deduct their contributions from their taxable state income. The deduction is $4,000 per year, per beneficiary, with unlimited carry forward, which means that the $4,000 is not a contribution cap. If an Ohio taxpayer contributes more than $4,000 in one year, they can continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all Ohio 529 Plan contributions have been deducted.
Ready-made investment options
To save your green, you can tailor a 529 college savings account to your family’s needs. Ohio’s 529 Plan offers a wealth of 529 investment options, from leading investment managers Vanguard, Dimensional Fund Advisors, and Fifth Third Bank. The investments include ready-made age-based portfolios and ready-made risk-based portfolios. These ready-made investment options are simple to use for each portfolio’s asset mix and allocations are pre-determined. When your child is younger, the asset allocation mix includes more stocks. As your child grows older, the asset allocation mix adjusts to reduce the amount of equity and increase the amount of conservative investing vehicles, such as fixed-income and cash preservation options.
Not sure what investment options fit your investment personality best? Take our risk tolerance questionnaire to determine with which asset allocation mix you would be most comfortable – conservative, moderate, or aggressive.
Also, Ohio’s 529 Plan has savings strategies to determine how to modify your 529 college savings account based on your child’s age. If your child just started kindergarten, you have longest amount of time to save as well as benefit from the power of compound interest. If your child is in middle or high school, you may want to increase your college savings contributions.
Ease of automatic deposits
Another simple way to save your green is to set up automatic deposits to your CollegeAdvantage 529 account. Many families find it’s best to have contributions automatically transferred from their personal checking or savings account to their 529 plan before the funds are used for other expenses. Electronically transferred 529 contributions can be scheduled to match paycheck deposits or to another monthly contribution schedule.
Some employers offer payroll direct deposit, where regular contributions of $25 or more can be deposited directly into your Ohio 529 Direct Plan account. First, log in to your account, then under recurring contributions, select payroll deduction. Set up the contribution dollar amount then hit submit. Once it’s processed, go to the “Get Form” to print it then submit it to you payroll department. If you manage your direct deposit through an employee portal, then enter the information from the form and list it as a checking account. Please note that a Fifth Third Certificate of Deposit (CD), which requires a $500 minimum contribution to open, is not available for purchase through automatic recurring contributions or payroll deduction.
Rethink your refund
Another way to boost your 529 college savings plan is to contribute federal and state tax returns, pay raises, or bonuses to your 529 account. By saving some or all of the refund in your Ohio 529 Plan account, you can be well on your way to covering your child’s higher education or college costs. 529 plans can be used nationwide for whatever school comes after high school — whether a four-year, two-year, trade or vocational programs, and apprenticeships. Here’s what saving some or all of your tax return in Ohio’s 529 Plan can cover for your child’s in-state tuition.
Save your green for higher education costs
Why save your green in Ohio’s 529 Plan? It’s far cheaper to save for their higher education now and earn tax-free interest in a 529 account than to pay off student loans that grows with accumulated interest later. Every dollar saved today is a dollar that doesn’t have to be borrowed later which makes Ohio’s 529 college savings plan an excellent alternative to student loan debt. With all the benefits offered in Ohio’s 529 Plan, the green you save now can grow to reach your college savings goals.
Ready to start saving your green with Ohio’s 529 Plan? Visit CollegeAdvantage online to save for your child’ future training and higher education. If you’d like to learn more about the tax-advantaged way to save for college, explore Ohio’s 529 Plan — The Plan That Can.
This article was originally posted in March 2019 and has been updated to reflect new information for 2021.
Posted on March 16, 2021