Mom and son with bikes at the beach

You’ve prepared for your children’s future by saving in Ohio’s 529 Plan, CollegeAdvantage, for their education after high school. Now one of your child is considering different career and education options after their high school graduation and some do not include college. Don’t worry about how to use your Ohio 529 account. You have many options on how to use those 529 savings.

Not just for four-year programs

First, keep in mind that 529 plans can be used at different higher education institutions. Not only can you use your savings in Ohio’s 529 Plan at four-year colleges and universities, but also two-year community colleges, trade or vocational schoolsapprenticeships approved by the U.S. Labor Department, graduate school, or certificate programs nationwide that accepts federal financial aid. Moreover, there are over 30,000 schools of all kinds at which you can use your Ohio 529 plan across the country.

While your child may not want to pursue a four-year degree, they may see the benefits of a trade or certificate program. You can use your Ohio 529 funds to pay for their qualified higher education expenses at a trade school. Or your child is brilliant at coding and wants to pursue a career with a certificate program, your Ohio 529 savings can pay for their qualified costs for it. If your child wants to work in an apprenticeship to receive hands-on training in a skilled profession, you can take a qualified 529 distribution to pay for the fees, textbooks, supplies, and equipment like required trade tools. Just remember in order to use your 529, apprenticeship must be registered with the U.S. Labor Department.

Not sure what to study?

If your child has many different ideas on what career they want to pursue, you can use your 529 plan to cover classes at a community college. Usually lower in cost than a four-year program, your child can take required core classes that, in many cases, will transfer to other schools, or explore different courses while searching for their dream profession. Your student can work toward an associate degree or use the community college as a stepping-stone to a traditional four-year university. Either way, a 529 plan can cover qualified high education expenses there.

Hold on to the 529 plan

There is no deadline for when you must use your 529 account. So, if your child decides not to head to college right after their high school graduation, your 529 is ready for whenever they want to start. Let’s say they want to use a gap year to explore different career options or work to earn some funds to help pay for their college costs. Once they’re ready to start their higher education, you can make the tax-free withdrawals from your Ohio 529 account. Or after working for a while, your child could change their mind about earning a higher education.

As your 529 account does not have a time limit, the funds are available for use at any point in your beneficiary’s life, whether at 18, 28, 58, or 78. Whenever they decide to finally seek a college education or learn a trade, your 529 plan is ready to cover their qualified higher education expenses. Until that time, your college savings account can continue to build through tax-free earnings.

Transfer to a member of the family

What if your child decides that they will not be pursuing a higher education and so they won’t be using their college savings in their Ohio 529 account? You still have options. You can transfer the account to another beneficiary. The new 529 beneficiary must be a member of the family to your child – whether by blood, marriage, or adoption. This list include siblings, stepsiblings, stepparents, cousins, nieces, and nephews. You can even roll over the account to yourself to fund your own continuing education. Since there are no time limits for using 529 plans, you could also hold onto the already established Ohio 529 account for your future grandchildren’s future college costs.

Pay for sibling’s qualified student loans

Does your child have older siblings who went to college and have some student loans? The 2020 Further Consolidated Appropriations Act allows tax-free 529 withdrawals to pay principal and interest on certain qualified education loans for the original beneficiary of your Ohio 529 account and their 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. So if one of your children won’t be using their Ohio 529 account, you as the account owner can use it to pay off your other children’s qualified student loans.

Start a Roth IRA

Beginning in January of 2024, a new 529 benefit will go into effect. This new tax-free distribution will allow any unused 529 funds, subject to certain requirements, to roll over to a Roth IRA for the same 529 beneficiary without incurring any penalty on the earnings. This way, you can use their higher education savings to give them a big jump-start on their retirement savings.

There are specific requirements in order to use this new qualified 529 distribution. First, a 529 account must be open for the beneficiary for 15 years. Second, the Roth IRA must be for the same beneficiary of the 529. Third, your contributions—also known as the principal—must have been in your Ohio 529 account for at least five years before the Roth IRA rollover. Fourth, you can only roll over 529 funds up to the yearly Roth IRA contribution limit, which is $6,500 for 2023. Fifth, the lifetime maximum 529 amount allowed for the Roth IRA rollover is $35,000.

There are still clarifications and operational issues being resolved relating to this change.  Ohio’s 529 Plan will provide more information once it is available. Again, keep in mind change does not go into effect until Jan. 1, 2024.

Military academy exception

Does your child not need the funds saved in the 529 account because they will be attending an U.S. military academy? If so, then you can make a non-qualified withdrawal from their 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.

Expenses for special-needs children and ABLE rollover

If your child may not head off for a higher education due to a disability diagnosis, your 529 plan can still support them. Here are three options.

First, 529 plans cover certain expenses for a special needs students. The IRS Publication 970 “Tax Benefits for Education,” describes this as “expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school.” Therefore, if your child wants to go to college, then your 529 plan can also cover the additional services needed for their higher education.

Second, you can make a non-qualified withdrawal from the college savings plan based on your child’s disability as long it meets the IRS’ specific definition found on page 53 of the IRS Publication 970. It states, “A person is considered to be disabled if he or she shows proof that he or she can't do any substantial gainful activity because of his or her physical or mental condition. A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration.” Like the military academy exception, you can request a withdrawal and 10% federal tax penalty will not assessed. However, the earnings-only portion of the withdrawal will be subject to federal, state, and local taxes.

Third, 529 rollovers to an ABLE (Achieving a Better Life Experience) account are allowed without any penalty, as long as the account is for the same child or another member of your family. IRS Publication 907 “Tax Highlights for Persons With Disabilities,” further describes these changes, including the current total annual contribution limit of $16,000.

Non-qualified withdrawal

The final way you can use your 529 account is with a non-qualified withdrawal. 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. If you are State of Ohio resident that has received the state tax deduction due to your contributions to Ohio’s 529 Plan, you will also be responsible for paying back any of the benefit related to the principal portion of the withdrawal.

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 34 years, Ohio’s 529 Plan 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 CollegeAdvantage

This blog originally posted in August 2018. It has been updated with new information for 2023.


Back To Top