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Do Not Be Afraid To Save For College In Ohio 529 Plan

529 Tips

Face Your 529 College Savings Fears

Deciding how to save for whatever comes after high school for your child can be scary. Many spooky tales swirl about 529 college savings plans. Here’s the truth from Ohio’s 529 Plan,  CollegeAdvantage.

What if I save in my state’s 529 plan but my child wants to go to an out-of-state school?

Truth: Your Ohio 529 college savings plan can be used nationwide for whatever school comes after high school for your child–whether for an associate, bachelor’s, graduate, professional, vocational degree, certificate program, or an apprenticeship. If the school has a Federal School Code on the Free Application for Federal Student Aid (FAFSA), then you can make tax-free withdrawals to cover qualified expenses there.

What costs can a 529 plan cover?

Truth: One of the great advantages of saving for college in a 529 plan are tax-free withdrawals for qualified higher education expenses. What makes an expense qualified? If the cost is required for enrollment or attendance at a post-secondary educational institute, then it will mostly like be considered a qualified higher education expense. For 529 accounts, they include:

  • 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. Room and board costs can include rent for off-campus residency and groceries (non-taxable items), provided these costs are equal or less than the same room and board allowances from the accredited education institution;
    • Mandatory fees;
    • Computer equipment and related technology as well as internet services;
    • Books, supplies and equipment related to enrollment and class schedule;
    • Certain apprenticeships costs — fees, textbooks, supplies, and equipment, including 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 Labor Department’s search tool to confirm that a program is eligible; and
    • Federal student loan payments. 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.

    What if my child doesn’t want to go to college?

    Truth: You always have access to the funds saved in your Ohio 529 account and you always have  options.

    First, 529 plans can be used many types of higher education, not only four-year colleges or universities, but also two-year community collegestrade or vocational schoolsapprenticeships, and certificate programs. So, if your child wants to attend a welding school after high school, you can use your 529 plan to cover qualified costs there as long as the institution accepts federal financial aid. Again, make sure the school has a Federal School Code on FAFSA in order to use your 529 funds there tax-free.

    What if your child chooses to attend a military academy after their high school graduation and, therefore, will not need their college saving account? You may make a non-qualified withdrawal up to the estimated cost of attendance within the same calendar year at a military academy without incurring an additional 10% federal tax penalty. The earnings portion of this withdrawal will be subject to federal and state income taxes. Another option on how to continue to use this college savings fund is to change to beneficiary of the 529 account to another member of the family.

    Also, there are no time limits on when you have to use a 529 plan so you can wait to see if your child rethinks their decision about wanting a higher education.

    If the original beneficiary still decides against pursuing their higher education, you can transfer the 529 account to another member of the family—anyone related by blood, marriage or adoption—without any fees. The money you set aside for their higher education can be transferred to their sibling, their cousin, or even yourself.

    There is also the option of withdrawing all the 529 funds. This will be treated as a non-qualified withdrawal; therefore, a 10% federal tax penalty will be imposed—just the same as if you take an early withdrawal from a retirement savings vehicle—but only on the earnings portion of the withdrawal. You would also be liable for any federal, state, and local income taxes on the earnings.

    What if my child gets a scholarship?

    Truth: 529 plans are made to work with scholarships so your 529 college saving account is still an important component of your college-saving strategy. Very few scholarships cover 100% of the costs; for instance, a scholarship may only cover the cost of tuition.  A 529 plan is perfect to pay for any qualified expenses that the scholarship doesn’t cover.

    Also, you can withdrawal the exact amount of the scholarship from your 529 account. This would be treated as a non-qualified withdrawal, but only the earnings portion the withdrawal will be subject to federal and state taxes.  A scholarship withdrawal is exempt from the 10% federal tax penalty.

    Will my savings in a 529 affect financial aid?

    Truth: If you, as a parent, 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. Put another way, if you have $10,000 in a 529 plan, only $564 will count in the federal financial aid calculations.

    What if I’m starting too late?

    Truth: It’s never too late to save for higher education costs. Unless your student is in the last semester of their higher education, 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 won’t have to borrow. Start your savings with a a tax-advantaged 529 plan in which earnings grow tax free and withdrawals are tax free when used for qualified higher education expenses.

    For Ohio residents who contribute to an Ohio’s 529 account, they can deduct up to $4,000 from their Ohio state tax income tax for matching 529 contributions. However, the $4,000 deduction limit is not a contribution cap. For Ohioans who contribute over $4,000 per account, per year, they can carry forward this deduction to their Ohio adjusted gross income for subsequent tax years until all of their contributions are fully deducted.

    To fully explain the unlimited carry forward of the state income tax deduction, let’s use two examples. An Ohio taxpayer contributes $4,000 to two 529 accounts for each of her two children, for a total of $8,000. She could deduct a total of $8,000 from her Ohio taxable income for the year. Alternatively, if an Ohio taxpayer contributed $8,000 to a CollegeAdvantage Direct Plan Account for one child in one year, he could deduct $4,000 from his Ohio taxable income during the current year, and also the next year.

    Are there fees to start saving in Ohio’s 529 Plan?

    Truth: At Ohio’s 529 Plan, we believe that you shouldn’t be penalized for doing the right thing by saving for your child’s future higher education. That’s why there is no fee to open a tax-free Ohio 529 account. To start a 529 account, you just need to make your first contribution to it. It’s that easy. The minimum contribution amount is $25. Ohio’s 529 Plan is recognized for our low fees as well as how our 529 plan works for Ohioans and non-residents with a 5-Cap Rating by, the leading independent source for information to save for and pay for college.

    What if I don’t know how to get started?

    Truth: Ohio’s 529 Plan, CollegeAdvantage wants to help you! Ohio’s 529 Plan offers 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 more specific questions you may have. lf you already have a 529 plan, it might be time to review these life-stage account strategies or perform account maintenance to keep your 529 account synced with what is going on in your family’s life.

    Visit Ohio’s 529 Plan online to start saving today for your child’s future education. A 529 account can be used for whatever school comes after high school. 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 529 Plan today at

    This article was originally posted in October 2019 and has been updated to reflect new information for 2021.

    Posted on October 31, 2021

    Ohio Tuition Trust Authority

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