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Ohio 529 Plan Celebrates Its 5-Cap Rating

If you are interested in starting to save for your children’s future higher education and want to learn more about tax-advantaged 529 plans, Savingforcollege.com is an unbiased industry-trusted informational website, which provides detailed analysis and articles on 529 plans, financial aid, and scholarships, as well as tools to estimate college expenses.

Savingforcollege.com also ranks the nation’s 529 programs based on how well they service both in-state and out-of-state residents with its 5-Cap Rating rankings. Ohio’s Direct 529 Plan, CollegeAdvantage, has earned the top 5-Cap Rating for both in-state and out-of-state residents as of Dec. 31, 2020. This makes Ohio’s 529 Plan one of only six programs nationwide to achieve this honor for both in-state and out-of-state residents.

Ohio’s Direct 529 College Savings Plan has received this top 5-Cap rating for more than 5 years running.

In order to achieve the top 5-Cap Rating, a 529 plan must “offer outstanding flexibility, attractive investments, and additional economic benefits (such as generous state tax incentives) that for some people, at least, will provide a substantial boost to their savings. There are few, if any, weaknesses noted in the program.”

The rating is based on five criteria:

  1. The performance of the 529 plan;
  2. The costs of running the college-savings plan including expense ratios, administration and managerial fees;
  3. Features such as a spectrum of age-based and risk-based portfolios as well as FDIC-insured options to cover all levels of investment risk, participation in programs like Upromise and Ugift, and contribution restrictions;
  4. Reliability signals such as plan disclosure statements, the ease of making account changes, and the caliber of outside program managers,
  5. Resident upgrades such as advantages like tax benefits for any account owner as well as additional tax breaks for state residents.

BlackRock CollegeAdvantage 529, Ohio’s 529 Advisor Plan, was also one of the top-rated advisor plan with a 5-Cap rating for in-state residents and 4.5-Cap rating for out-of-state residents, one of only five advisor plans in the country to attain this ranking.

Other honors for Ohio’s 529 Plan

Ohio’s 529 Plan also tops two of the long-term performance rankings from Savingforcollege.com, which analyzes the performance of the nation’s 529 plans on a quarterly basis and ranks them. Ohio’s 529 Plan has consistently received high marks for its long-term investment performance.

Nationwide, 49 states and the District of Columbia offer 529 plans. As of Dec. 31, 2020, CollegeAdvantage Direct 529 Plan ranks first in the nation for the best investment performance in two different categories: five year and ten year.

For more than three years, Ohio's Direct 529 Plan has been ranked first in the nation for five-year investment performance. Additionally, Ohio's 529 Plan has been ranked first in the nation for 10-year investment performance for two years.

Savingforcollege.com determines a 529 plan’s performance score by comparing seven similar asset-allocation categories between all the nation’s 529 plans, the historical performance of each selected portfolio category, and then averaging the score of all the groupings.

Savingforcollege.com consistently recognizes Ohio’s Direct 529 Plan as one of the best plans in the nation for both Ohio residents and non-Ohio residents.

Ohio’s 529 Plan tax advantages

What are some of the reasons that Ohio’s 529 Plan ranks so well? CollegeAdvantage helps families across the nation save money for their children’s future costs associated with college, vocational, trade, or technical school, as well as apprenticeships, while offering tax-advantaged benefits.

First, contributions and earnings grow tax free in a 529 plan, so all investment growth will be yours to use to cover future college costs. Second, a 529 withdrawal is tax free when used to pay qualified higher education expenses — those costs that are mandatory to attend the federally accredited school or program. Third, a CollegeAdvantage account owner who is an Ohio resident can deduct their 529 contributions from their Ohio taxable income. The deduction is now $4,000 per year, per beneficiary, with unlimited carry forward. This means that $4,000 per year is not a contribution cap. If an Ohio taxpayer contributes $12,000 in one tax year, they will continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all the 529 contributions have been deducted.

Not Just For Four-Year Programs

529 plans can be used for whatever comes after high school, as higher education takes many forms. This list includes not just four-year universities and colleges, but also community colleges, trade and specialty schools, certificate programs, graduate school, law school, medical school and apprenticeships.

Simply put, you can use the funds in your Ohio 529 Plan almost anywhere you are comfortable sending your child and your money. 529 plans can be used at any post-secondary school that accepts federal financial aid. If you want to confirm that the schools your child wants to attend — whether four-year, two-year, graduate, or vocational — 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.

With the 2019 passage of the SECURE (Setting Every Community Up for Retirement Enhancement), two new qualified higher education expenses have been added to 529 college savings plans.

First, qualified costs for apprenticeships — such as fees, textbooks, supplies, and equipment like required trade tools — now can be paid with 529 distributions. The apprenticeship program must be registered with the Secretary of Labor’s National Apprenticeships Act in order to use a 529 plan withdrawal. Interested parties can check the U.S. Labor Department’s search tool to confirm that a program is eligible.

Second, student loan repayments are now a qualified cost for 529 plans. Any student loan that qualifies for the federal student loan income tax deduction can now be paid with a 529 distribution. There is a $10,000 lifetime limit per 529 beneficiary. However, an additional $10,000 can be used to repay qualified student loans for each of the beneficiary’s siblings.

Tools and calculators

Ohio’s 529 Plan has calculators and tools to shape the 529 plan to best fit your family’s needs. Would you like to receive an estimate on your child’s projected college costs and what monthly 529 plan contribution can help you reach a saving goal? Then use the college savings planner. The cost of waiting tool can approximate how much more money will need to be saved if you get a late start on saving for higher education costs. The tax benefit tool shows the long-term advantages of tax-free growth in a 529 plan compared to a taxable savings account. Answer the risk tolerance questionnaire to determine an investment strategy best suited to your comfort level with risk.

Visit Ohio’s 529 Plan to start saving today for your child’s future education. An investment in a 529 plan is an investment in your child where every dollar saved today is a dollar that doesn’t have to be borrowed later. A 529 account can be used for whatever comes after high school. If you’d like to do more research, explore Ohio’s 529 Plan —The Plan That Can — at CollegeAdvantage.com.

Posted on April 22, 2021

Ohio Tuition Trust Authority

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