Test Your Knowledge With A Quick 529 Quiz For 529 Day
This Sunday, May 29 (5/29), 2022, is known as 529 Day in the college saving industry to highlight the importance of 529s to help families achieve their higher education savings goals. 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 education savings plans!
529 plans are only for four-year colleges. FALSE
529 education savings accounts have been mistakenly thought of only being for use at four-year colleges or universities. The truth is that 529s can be used at many different higher education institutions. If the school accepts federal financial aid, which means it has a Federal School Code, then your 529 plan can be used there. Basically, you can use your account almost anywhere you’re comfortable sending both your student and your money.
Where else can your 529 account can pay for the qualified higher education expenses at 529 plans, other than a four-year college or university? 529s can be use at two-year community colleges, trade or vocational schools, apprenticeships, and certificate programs.
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.
Saving in a 529 plan is 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 expenditures are usually the mandatory costs to attend the program.
Third, as an Ohio resident who saves in Ohio’s 529 Plan, 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.
You’re really limited on what a 529 can pay for. FALSE
Your savings in an Ohio 529 account is quite flexible in paying for qualified higher education expenses tax-free. And for what you can pay with your 529? Basically, all the required costs to attend that higher education institution:
- 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 also include rent for off-campus residency (whether a rental or a Greek-affiliated residence) and groceries (non-taxable items only), 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;
- apprenticeships costs like 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.;
- any student loan that qualifies for federal student loan income tax deduction to 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; and
- K-12 tuition up to $10,000 per student, per year, for enrollment at public, private, or religious elementary or secondary school.
If my child doesn’t go to college, I will lose the money saved in my 529. FALSE
You always have access to the funds saved in your Ohio 529 account and you always have options when they’re used…and when they’re not used.
First, there is no deadline for when you must use a 529 plan. So, you can wait for when your child rethinks their decision about their education after high school. Or you can save the account for any grandchildren you might have.
And again, if your child isn’t interested in going to a four-year program, 529 accounts can pay for costs at community colleges or technical schools, trade or vocational schools, certificate programs, and apprenticeships.
If your 529 beneficiary just doesn’t want a higher education after high school, you can transfer the 529 account to any family member. That’s anyone who is related by blood, marriage or adoption. So the money you set aside for their higher education can be transferred to a sibling, a cousin, or even yourself.
If your 529 account is simply not going to be used, you can request a non-qualified withdrawal from your 529 account. Only the earnings-portion of the withdrawal will be taxed at the federal, state, and local level. Any contribution you made was with post-tax dollars so it will not be taxed again. Like other tax-advantaged saving programs (like a 401k), there will be a 10% federal tax penalty assessed for withdrawing money from the 529 plan when those funds aren’t used for qualified higher education expenses. You can deposit the remaining funds or direct the non-qualified withdrawal to your child who is the account beneficiary. Before you elect to make a non-qualified withdrawal, first talk with your financial advisor or tax consultant to evaluate your options.
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.
BONUS QUESTION: 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.
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 school comes after high school. Learn, plan, and start with Ohio’s 529 Plan today at CollegeAdvantage.com.
This article was originally posted in March 2021 and has been updated to reflect new information for 2022.
Posted on May 27, 2022