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Even if you are already saving for your child's higher education in Ohio's 529 Plan, you can learn still more about the benefits of saving in a 529 account. Ohio’s 529 Plan, CollegeAdvantage, shares 10 reasons why you should save in a 529 to maximize your college savings.

1) Save in Ohio’s 529 Plan; Use it nationwide

Saving for education after high school in Ohio’s 529 Plan does not mean your child can only attend Ohio schools. You can use your Ohio 529 account almost anywhere that you are comfortable sending both your child and your money. 529 plans can be used at any federally accredited educational institution that is a post-secondary school that accepts federal financial aid. If you want to confirm that the schools your child is interested in attending accepts federal aid, then do a search. If the institutions have a Federal School Code for the Free Application for Federal Student Aid ( FAFSA), then you can use your 529 funds there. 

2) Not just for four-year schools

Ohio’s 529 Plan can be used nationwide for whatever comes after high school, including federally accredited  apprenticeshipstrade and specialty schoolscommunity colleges or technical schools, certificate programs, four-year universities and colleges, all types of graduate school, including law school and medical school.

As an adult, you can also use a 529 plan for your own continuing education. Whether it’s to complete your degree, earn additional credentials to keep growing your career, or take a new career path, a 529 plan can help you earn the education for which you’re striving.

3) Just $25 to start

You can get started saving for your child’s future with as little as $25. You only need $25 for the initial contribution to open an Ohio 529 account. And all contributions can start as low as $25. There are no fees to open an account. We know there’s a lot of expenses in your family’s budget. But starting an account and saving for your child’s higher education doesn’t a large draw on your finances. After all, $25 saved now is $25 that doesn’t have to be borrowed later.

4) We’ve got an app for that!

Ohio’s 529 Plan now offers the READYSAVE 529 app, so you can now manage your college savings from your phone! The app, developed in conjunction with our recordkeeping partner, Ascensus, makes it easy for you to access your account information, track account growth, and make both one-time and recurring contributions from the bank account on file from your cell phone! And with the READYSAVE529 app, you can send an invitation to your family and friends to contribute to your child’s higher education via Ugift.

You can download the READYSAVE 529 app now from the Apple and Google Play app stores. Once you install the app, select Ohio’s 529 Plan from the list and log in with the same username and password you use to access your account online.

5) Tax benefits

There’s three main tax benefits available to every Ohioan who saves in Ohio’s 529 Plan.

First, while saving in Ohio’s 529 Plan, any earnings will be tax-free. This means that all the investment growth is yours to use for your children’s future college costs. Compound interest — the interest earned on contributions, earnings, and interest already accumulated in the 529 account — is included in the tax-free earnings. To see just how tax-free growth adds up with a 529 savings plan, use the tax benefit tool to see the difference between a 529 plan account and a taxable savings account.

Second, withdrawals to cover qualified higher education expenses are made tax-free for federally accredited programs.  As is the case with all 529 college savings plans, the burden of proof for tax purposes for qualified expenses and withdrawals is on the account owner. Retain all documentation of your beneficiary's room and board and other 529-qualifed expenses.

Third, an Ohio resident who saves in Ohio’s 529 Plan, CollegeAdvantage, can deduct their contributions from their taxable state income. The Ohio deduction amount is $4,000 per year, per beneficiary, with unlimited carry forward. This means that $4,000 is not a contribution cap. If an Ohio taxpayer contributes more than $4,000 in one year, they can continue to deduct $4,000 per year, per beneficiary, from their State of Ohio taxable income until all Ohio 529 Plan contributions have been deducted.

6) Flexible uses for 529 withdrawals

Again, all 529 withdrawals are tax-free for qualified expenses, which are usually those required costs to attend a post-secondary education institution and other expenses covered under Section 529 of the Internal Revenue Code.

 These expenditures include tuition; room and board 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. Room and board costs can also include rent for off-campus residency and groceries (non-taxable items only), provided these costs are equal or less than the same room and board allowances from the accredited school. As is the case with all 529 college savings plans, the burden of proof for tax purposes for qualified expenses and withdrawals is on the account owner. Retain all documentation of your beneficiary's room and board and other 529-qualifed expenses.

Tax-free 529 withdrawals can also be used to pay for certain expenses associated with apprenticeship programs registered and certified by the Secretary of Labor under the National Apprenticeship Act. And 529 withdrawals can also pay for the principal and interest on qualified education loans for the beneficiary of an account or the beneficiary’s siblings. The loan repayment provision applies to repayments up to $10,000 per beneficiary. The $10,000 is a lifetime amount, not an annual limit. Consult your qualified tax advisor for specific information.  

And there’s one more expenditure for which a 529 plan withdrawal is tax-free.

7) Pay for K-12 tuition

Did you know that you can use your 529 plan before your child needs it for their higher education? 529 accounts 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 schools. 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.  

8) Save with loved ones’ contributions

Family and friends want to commemorate the big events in your child’s life. If they ask for gift ideas, tell them that they can help with the next big milestone in your child’s life – their higher education —with a contribution to your child’s 529 plan. With Ugift, it’s simple for anyone to contribute to your CollegeAdvantage Direct Plan account. Log in to your 529 account and click on Ugift to receive a unique code for your account. This code permits others to make online contributions to your 529 plan without needing the actual account number. Once they have the Ugift code, friends and family can visit​ to make their electronic contribution securely from their bank account. The gift giver can make one-time or recurring electronic contributions at any time, and if they are an Ohio taxpayer, they can deduct their contributions up to $4,000 from their Ohio taxable income.

9) Minimum effect on financial aid

Families should always complete the Free Application For Federal Student Aid (FAFSA). FAFSA is the application for federal financial aid used to attend four-year colleges and universities, community colleges, trade and vocational schools, and graduate schools. Most institutions of higher education use the FAFSA information to determine the amount of financial aid the school will provide to students.

Being pro-active by saving for your child’s higher education in a 529 plan will not have a significant impact on your financial aid when you fill in FAFSA. Current federal guidelines state that if a student is a dependent and the 529 account is owned by a parent, then the account will be considered the parent’s asset and will be calculated at a maximum of 5.64% of its value. So let’s say, you’ve saved $10,000 in your 529 account. Only $564 of it would be included as an asset on FAFSA. And wouldn’t you rather have $10,000 for college than potentially lose less than $564 of financial aid?

10) What if your child doesn’t want to go to college?

You have options if your child doesn’t want to go off for their higher education, right after their high school graduation. First, there is no deadline on when to use a 529 so you can wait to see if your child changes their mind after a year out in the working world. The funds will be ready to use if they decide to pursue their higher education at a four-year program, community college, trade or technical school, apprenticeship or certificate program later. This also means that if your child doesn’t go on to college, you can save those 529 funds for grandchildren instead. You are also welcome to transfer the 529 account to another member of the family—whether related by blood, marriage, or adoption—without any fees.

Is your child is starting their career at U.S. military academy? If so, then you can make a non-qualified withdrawal from the 529 account up to the estimated cost of attending the military academy without incurring the 10% federal tax penalty. The earning portion only of the withdrawal will be subject to federal, state, and local taxes.

The federal government recently added another type of qualified distribution for 529 higher education savings accounts with the SECURE 2.0 Act of 2022, which is part of the Consolidated Appropriations Act, 2023. This new tax-free distribution will allow any unused 529 funds (subject to the requirements listed below) to roll over to a Roth IRA for the same 529 beneficiary without incurring any penalty on the earnings. This new benefit will go into effect in Jan. 1, 2024.

There are some requirements in order to use this new qualified distribution.

  • A 529 account must be open for the beneficiary for 15 years.
  • The Roth IRA must be for the same beneficiary of the 529.
  • Your contributions—which are also known as the principal—must have been in your Ohio 529 account for at least five years before the Roth IRA rollover.
  • You can only roll over 529 funds up to the yearly Roth IRA contribution limit, which is $6,500 for 2023.
  • The lifetime maximum 529 amount allowed for the Roth IRA rollover is $35,000.

There are still many clarifications and operational issues that will need to be resolved relating to this recent change.  We will provide more information once available. Again, keep in mind change does not go into effect until Jan. 1, 2024.

If you reach a point where your 529 account is simply not going to be used, you can request a non-qualified withdrawal from your 529 plan. This means that the earnings-only portion of the withdrawal will be taxed on the federal, state, and local level. Like other tax-advantaged saving programs, there will be a 10% federal tax penalty assessed for withdrawing money from the 529 plan for costs that aren’t considered qualified higher education expenses. As the 529 account owner, you can 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.

For more than 33 years, Ohio’s 529 Plan, CollegeAdvantage, has been helping families across the nation save for their children’s higher education. Ohio’s 529 Plan covers qualified costs at any four-year college or university, two-year community college, trade or vocational school, apprenticeship approved by the U.S. Labor Department, or certificate program nationwide that accepts federal financial aid. Learn, plan, and start for as little as $25 today at  

This article was originally posted in October 2022 and has been updated to reflect new information for 2023.

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