Use Child Tax Credit To Boost Your Ohio 529 College Savings
Starting this July, the IRS began to send out half of the payments of 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. This monthly credit will range from $250-$300 for each child.
Individuals eligible for a 2021 Child Tax Credit will receive advance payments on their credit, which the IRS will make through monthly payments from July to December 2021. The other half of the Child Tax Credit can be claimed on your 2021 federal tax return. If you would rather receive the full tax credit on your 2021 federal income tax return, you will need to opt out of the monthly payments.
These funds are designed to help families financially and create monetary stability. If you don’t need those funds or the most recent stimulus check to take care of your family’s pressing bills, establish an emergency fund, or pay off debt, then consider using these payments to build up your college savings account with Ohio’s 529 Plan, CollegeAdvantage. Even adding a small portion of these credits can add up to big savings down the road.
If you’re interested to see how adding these six monthly payments to your Ohio 529 account can build up your college savings, use our College Saving Planner tool. Add the numbers to the calculator and see how your higher education saving account can grow. And the extra funds will help to pay for more college costs in the future.
Why Save For College In Ohio’s 529 Plan?
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); 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. Qualified expenses for accredited apprenticeships — like fees, textbooks, supplies, and equipment like required trade tools — can be paid with 529 withdrawals. Also, student loan repayment is a 529 qualified withdrawal. 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 on student loan repayment 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 an Ohio 529 account 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.
If you compare saving in a 529 college saving account to a regular saving account, you can see that the benefits of 529 tax advantages, the power of compound interest from 529 investment options, the 529’s favorable consideration on the Free Application for Federal Student Aid (FAFSA) outweighs a savings account benefits. If you’d like to check out how much you can save on taxes with an Ohio 529 account, use the Tax Benefit Tool to see how the 529 tax advantages really add up.
Where Can You Use Ohio 529 Plan?
529 plans can be used for whatever comes after high school, including federally accredited trade and specialty schools, apprenticeships, community colleges, certificate programs, four-year universities and colleges, graduate school, law school, and medical school. So, if your child chooses to further their education by attending a trade school, apprenticeship, or certificate program, you can also use your 529 account to pay for qualified costs there.
And Ohio 529 Plan can be used nationwide; it’s not just for local schools! If the higher education institute has a federal school code because they accept federal financial aid, then you can use your 529 college savings account there.
Honors For Ohio’s 529 Plan
If you are ready to start saving for your children’s future higher education and want to learn more about tax-advantaged 529 plans, Saving For College 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 serve both in-state and out-of-state residents with its 5-Cap Rating. Ohio’s Direct 529 Plan has earned the top 5-Cap Rating for both in-state and out-of-state residents as of March 31, 2021. This makes Ohio’s 529 Plan one of only six Direct 529 plans nationwide to achieve this honor for both in-state and out-of-state residents.
Ohio’s 529 Plan also tops the long-term performance rankings from Savingforcollege.com. As of March 31, 2021, CollegeAdvantage Direct 529 Plan ranks first in the nation for the best investment performance in the ten-year category. Ohio’s Direct Plan also ranks second in the nation in the three-year category, sixth in the nation in the five-year category.
Additionally, Ohio’s 529 Plan has been named one of Military Saves’ Savings Champion for our continual support of this important program. Military Saves is part of the nonprofit Consumer Federation of America and is an initiative of America Saves. Military Saves works with government agencies, defense credit unions, military banks, and nonprofit organizations to promote savings and debt reduction.
Morningstar ranks Ohio’s Direct 529 Plan as Silver. In addition, BlackRock CollegeAdvantage 529 has a bronze ranking. This makes Ohio one of only four state programs that have their Direct and Advisor 529 Plans ranked as medal-class college savings programs by Morningstar. The high ranking for both CollegeAdvantage 529 Plans highlights the strength of these two college savings plans as well as the industry’s regard for Ohio’s 529 Plan as one of the best in the nation.
Forbes Advisor ranks Ohio’s 529 Plan as one of the six best college savings programs in the nation for 2021. According to their explanation: “Ohio’s 529 Plan comes with features in line with the other plans on our list, including low fees, a range of investment options and a tax deduction for Ohio taxpayers. … The plan also comes with a minimum contribution, both to open the account and for each contribution thereafter. But it is small ($25) and likely manageable for many plan participants.”
Also in 2021, CNBC selected Ohio’s 529 Plan as one of the five best programs nationwide. As they wrote, “There isn’t much not to like about the CollegeAdvantage 529 plan — there’s a good mix of investment options (including FDIC-insured accounts), low fees and plans from top companies like Dimensional Fund Advisors. In fact, overall management fees are some of the lowest we’ve seen. Combined with low expense ratios, this makes this plan one of our top picks.”
Visit Ohio’s 529 Plan online 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. Learn, plan and start with Ohio’s 529 Plan today at CollegeAdvantage.com.
Posted on July 29, 2021