Rethink Your Refund To Fund Your Ohio 529
Due to the COVID pandemic, the federal government has extended the tax filing deadline to May 17, 2021. If you’ve discovered that you will be receiving money back, your federal income tax refund can be the foundation of your college savings account. By saving some or all of the refund in Ohio’s 529 Plan, CollegeAdvantage, you can be well on your way to covering your child’s higher Saving your tax refunds in Ohio's tax-free 529 Plan could be your entire college savings plan.education or college costs.
Ohio’s 529 Plan can be used nationwide whatever school comes after high school — whether a four-year, two-year or trade school, or vocational and certificate programs. With the changes made to 529 plans through the SECURE Act, 529 plans can also pay for qualified costs for apprenticeships, including fees, textbooks, supplies, and equipment, which includes required trade tools. 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.
See What Your Tax Refund Can Fund
Your federal and state tax refunds can be a great way to increase your college savings in Ohio’s 529 Plan. As these are once-a-year contributions, you can use our College Savings Planner tool to see what these refunds can do to your 529 account’s bottom line.
The average 2019 federal tax refund for Ohioans was $2,510. By adding $2,510 a year to an Ohio 529 account, you could cover almost 38% of college cost at an Ohio public university, based on 18 years at 6% growth.
Would you like to crunch the numbers for yourself? Ohio’s 529 Plan offer tools and calculators to create the college savings plan that works best for your family. The College Savings Planner tool can let you work with different contributions amounts and see how the numbers can add up. Additionally, you can use the tool to see what your estimated 529 account total could be if you deposited monthly automatic contributions, as well as increased the dollar amount or the frequency of 529 contributions. Every amount contributed, whether big or small, can help you reach your savings goal.
Ohio’s tax-free 529 Plan is the simple way to be ready to pay some or all of your child’s higher education.
Child Tax Credit
Starting in July, the IRS plans to send out the enhanced Child Tax Credit, passed as part of the American Rescue Plan Act. The act will increase the tax credit from $2,000 to $3,600 for children under age six, and to $3,000 for children ages six to 17. Individuals eligible for a 2021 Child Tax Credit will receive advance payments on their credit, which the IRS will make through periodic payments from July to December. This monthly credit will range from $250-$300 for parents.
If you don’t need those funds or the last stimulus check to take care of your family’s immediate needs, then consider using them to build up your 529 college savings account. Even adding a small portions of these credits can add up to big savings down the road.
529 Plan Tax Advantages
There are many reasons why to save for your child’s future higher education in Ohio’s 529 Plan, especially the tax benefits.
First, earnings in a 529 plan are tax-free, so all investment growth is yours to cover college costs.
Second, 529 plan withdrawals to cover qualified higher education expenses are tax-free at federally accredited programs. These expenditures include tuition; room and board (on and off campus) when the beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment related to enrollment and classes; and certain expenses for a special-needs student. With the 2019 SECURE Act, qualified expenses such as fees, textbooks, supplies, and equipment, which includes required trade tools related to a U.S. Labor Department accredited apprenticeships can be paid with 529 withdrawals. Also, student loan repayment is now a qualified withdrawal 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.
Third, Ohio residents who contribute to Ohio’s 529 Plan can deduct their contributions from their taxable state income. This deduction amount 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 the 529 contributions are deducted.
Set Your Savings Strategies
It’s never too late or too early to start saving for your child’s future college costs. No matter how old your child is, Ohio’s 529 Plan can provide 529 account savings strategies. For instance, if your child is a baby to toddler, it is a fantastic time to start saving for future college expenses to take advantage of compound interest. During kindergarten through elementary school, disappearing expenses like day care costs allow you to redirect those dollars to your college savings plan. When your child enters middle school and high school, you may need to increase your contributions. Even if your child is about to start or has even started college, the tax-free earnings, tax-free withdrawals, and the state income tax deduction for Ohioans can still build up the 529 account.
Ready to rethink your refund and open an account with Ohio’s 529 Plan? Visit CollegeAdvantage.com to open an Ohio 529 account online to save for your child’s future training and higher education. An investment in a 529 plan is an investment in your child as every dollar saved today is a dollar that doesn’t have to be borrowed later. 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 May 17, 2021