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 of your green this St. Patrick’s Day 2024 to build your savings for your child’s education or career training after high school with tax benefits and many other advantages.
529 tax benefits
A huge advantage of saving in Ohio’s 529 Plan for your children’s future education and career training is the tax benefits, which include tax-free earnings, tax-free withdrawals, and a state tax deduction for Ohio residents. These tax advantages can help you save even more of your green.
While saving in an Ohio 529 account, all earnings grow tax-free. Therefore, all the investment growth is yours to use for your children’s future qualified expenses. 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 Calculator 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 at programs that accept federal financial aid. These expenses 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 as the school. Certain costs for U.S. Labor Department-approved apprenticeships are also included as qualified 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 qualified 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 529 contributions have been deducted.
Others can add some green, too
Loved ones, family, and friends can all contribute their green to your Ohio 529 higher education savings. Ask for gifts of higher education for your children’s birthdays, holiday celebrations, graduations, and other big celebrations. Loved ones want to give presents that have significance and what gift can last longer than a college education or technical training? A 529 gift contribution lasts a lifetime.
Ugift is an easy-button gift-giving feature with Ohio’s 529 Plan. After logging in to your Ohio 529 account online or in the READYSAVE 529 app, you can set up an Ugift code to send to loved ones who would like to give the gift of a higher education. This code permits others to make online gift contributions directly to your CollegeAdvantage Direct 529 Plan without your account number. Once you provide the Ugift code, friends and family can visit Ugift529.com to make their electronic contribution securely from their bank account.
Variety of 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 target enrollment portfolios, ready-made risk-based portfolios, and FDIC-insured options. The ready-made target enrollment investment options are simple to use as 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.
Also, Ohio’s 529 Plan has savings strategies to determine how to modify your 529 account based on your child’s age. If your child just started kindergarten, you have a long period 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 529 contributions.
Ease of automatic contributions
Another simple way to save your green is to set up automatic contributions 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.
Many 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 your payroll department. If you manage your direct deposit through an employee portal, simply 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 tax refund
Another way to boost your 529 higher education savings plan is to contribute federal and state tax refunds, pay raises, or bonuses to your 529 account. By saving some of the refund in your Ohio 529 Plan account, you can be well on your way to covering your child’s higher education or career training costs.
529 plan flexibilities
There are additional qualified expenses for which your Ohio 529 withdrawal would be tax-free.
First, a 529 account can also be used to pay for K-12 tuition at a public, private, or parochial elementary or secondary school. There is a limit of $10,000 per year that can be withdrawn from a 529 account to pay for the K-12 tuition. If your child has more than one 529 plan, then the combined qualified distributions from all the 529 accounts for K-12 tuition is limited to $10,000 a year. Consult your qualified tax advisor for specific information.
Second, a 529 withdrawal can pay the principal and interest on qualified education loans for the 529 beneficiary or the beneficiary’s siblings. The loan repayment provision applies to repayments up to $10,000 per beneficiary. The $10,000 is a lifetime amount, not an annual limit.
Third, families with leftover 529 funds can roll it over to a Roth IRA for the same 529 beneficiary without incurring any penalty on the earnings. There are some requirements to use this new qualified distribution. First, a 529 account must be open for the beneficiary for 15 years. Second, the Roth IRA must be for the same beneficiary of the 529. Third, your contributions—which are also known as the principal—must have been in your Ohio 529 account for at least five years before the Roth IRA rollover. Fourth, you can only roll over 529 funds up to the yearly Roth IRA contribution limit. Fifth, the lifetime maximum 529 amount allowed for the Roth IRA rollover is $35,000.
Save your green for future education, career training
So why save your green in Ohio’s 529 Plan? It’s significantly cheaper to save now for their education and earn tax-free interest in a 529 account instead of paying off student loans and all that accumulated interest later. Every dollar saved today is a dollar that doesn’t have to be borrowed later which makes Ohio’s 529 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 higher education savings goals.
Since 1989, Ohio’s 529 Plan has been helping families across the nation save for their children’s higher education. Ohio’s 529 Plan covers qualified expenses at any four-year college or university, two-year community college, trade or vocational school, apprenticeship approved by the U.S. Labor Department, or certificate programs, or continuing education classes nationwide that accepts federal financial aid. Learn, plan, and start for as little as $25 today at CollegeAdvantage.
This article was originally posted in March 2019 and has been updated to reflect new information for 2024.
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