Take A Quick 529 Quiz For 529 Day
May 29 is known as 529 Day in the college saving industry. To learn to how much you know about these tax-free college savings plans, Ohio’s 529 Plan, CollegeAdvantage, has five true-or-false questions for you to answer. You may learn something new about these tax-free higher education savings plans!
Is saving in a 529 plan tax free? TRUE
There are many tax benefits for saving in a 529 plan!
First, all earnings are tax-free so every dollar saved and every dollar earned through interest and compound interest is all yours to cover college costs.
Second, withdrawals for qualified higher education expenses are also tax-free. These are the mandatory costs to attend the program such as tuition; room and board during any academic period in which the 529 beneficiary is enrolled for at least half of the full-time academic workload according to the eligible education institution; 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. Interested parties can check the Labor Department’s search tool to confirm that a program is eligible.
Third, as an Ohio resident 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 the 529 contributions are deducted.
529 plans can only be used for college? FALSE
Additionally, SECURE Act allows for two new qualified expenses for 529 plans. The account can pay for certain qualified costs for apprenticeship programs, which have been accredited by the U.S. Department of Labor. Second, the SECURE Act allows 529 funds to pay principal and interest on certain qualified education loans for the beneficiary of your account or any of the beneficiary’s siblings. The loan repayment provisions apply to repayments up to $10,000 per individual. This $10,000 is a lifetime amount, not an annual limit. Withdrawals for student loan repayment and/or apprenticeships can only be made to the account owner or the beneficiary.
529s can also be used to pay K-12 tuition up to $10,000 per student, per year, for enrollment at public, private, or religious elementary or secondary school. If there are multiple accounts for a student, the combined 529 distributions to pay for their K-12 tuition is limited to $10,000 per year. Consult your qualified tax advisor for specific information.
Will saving in a 529 plan be counted on a financial aid application? TRUE but minimally
When applying for financial aid, any assets can affect your financial aid eligibility. As a parent, if you own a 529 account for your child, the funds will only be included up to the maximum amount of 5.64% in the Expected Family Contribution (EFC) on FAFSA. EFC represents what a family can expect to cover for higher education expenses. The difference between the total cost of enrollment and the EFC represents the remaining amount that may subsidized through federal student aid, based on need.
To put it another way, if you as the parent have $10,000 saved in a 529 plan, only $564 will count in the federal financial aid calculations.
My child is already in high school so it’s too late to start saving. FALSE
It’s never too late to save for higher education costs. Unless your student is in the last semester of their terminal post-secondary degree, there’s still time to save, whether the future is next semester or next decade. Every dollar you save now is one that your child shouldn’t have to borrow later.
It’s hard to open to open an Ohio 529 account. FALSE
If you’re ready to start saving for your child’s future higher education expenses, it’s simple to go online to open an account in minutes. Ohio’s 529 Plan provides a list of all the information you will need to start. There are also tools and calculators to shape your 529 plan. Crunch the numbers with the College Savings Planner to calculate estimated college costs and determine the monthly amount to contribute to reach your savings goals. If you’re wondering when you should start saving for their higher education, use the Cost Of Waiting Tool to see what a difference starting early can do for building up the 529 plan. The Tax Benefit Tool shows how a tax-advantaged 529 plan can grow when compared to a taxable savings account. Don’t forget, the sooner you start the 529 account, the sooner the power of compound interest and tax-free earnings can go to work growing the account. Use our blog page as a resource to find answers to your specific questions.
You can also test your 529 knowledge on a previous quiz. This true-or-false test covers different information about these college savings plans.
Posted on May 27, 2021