As a parent, you show your love for your children in a thousand different ways, which can include saving for their education after high school. After all, a college savings account is an investment in their future. For Valentine’s Day 2024, here are seven reasons (plus a bonus one!) to fall in love with Ohio’s 529 Plan.
Whatever school comes after high school
529 plans aren’t just for four-year colleges or universities. You can also use 529s to pay for career training. Maybe your child wants to learn important skills at a trade or vocational program. Maybe a certificate program is all they need to start a career that they will love. Maybe your child is interested in starting at a community college or earning an associate degree. Or they show great aptitude in a certain field and want to pursue an apprenticeship in it.
You can use your 529 plan at any educational institution that accepts federal financial aid – whether for an associate, bachelor’s, professional, or vocational degree, and certificate program.
Also, certain apprenticeships costs — such as fees, textbooks, supplies, and equipment, including required trade tools— can be paid with a 529 plan withdrawal. The apprenticeship program must be registered with the Secretary of Labor’s National Apprenticeships Act to use a tax-free withdrawal from a 529 plan. Interested parties can check the Labor Department’s search tool to confirm that a program is eligible.
529 tax benefits
For over 34 years, Ohio’s 529 Plan has helped families across the nation save money for their children’s future higher education costs with 529 tax benefits.
First, all contributions and earnings grow tax free in a 529 college savings plan, so all investment growth is yours to pay for qualified expenses. Second, a 529 withdrawal is tax free when used to pay qualified higher education expenses—those costs that are mandatory to attend a school. Third, Ohio residents who own an Ohio 529 can deduct their 529 contributions from their Ohio taxable income. The deduction—for an individual or married couple—is $4,000 per year, per beneficiary, with unlimited carry forward. This means that $4,000 per year is not a contribution cap. If an Ohio taxpayer contributes $8,000 in one tax year to one account, he or she will continue to subtract $4,000 per year, per beneficiary, from their State of Ohio taxable income until all the 529 contributions are deducted.
529 plan flexibility
You have all kinds of flexibility when it comes to using your 529 plan. Besides the 30,000 schools at which you can use your higher education savings, your 529 account also pays tax free most of the qualified expenses to attend a program like tuition; room and board – on and off campus; mandatory fees; computers and related internet services; and much more.
You have all kinds of flexibility in your investment options as well. You can choose from ready-made target enrollment portfolios to ready-made portfolios based on risk level, to individual investment options like international equity options, U.S. equity options, balanced options, fixed-income options, capital preservation option options from our partners at Vanguard and Dimensional Fund Advisors, as well as FDIC-insured banking options from Fifth Third Bank.
As the account owner, you have the flexibility in naming the beneficiary of the 529 college savings account. If the original beneficiary receives a full-ride scholarship or if they decide not to pursue education after high school, you can select a new beneficiary of the 529 account without any fees if they are a member of the family—related by either blood, marriage, or adoption. You can also hold onto the 529 education savings to see if your original beneficiary changes their mind, as there are no time limits to when the funds must be used.
Save in Ohio 529, use it nationwide
While you’re saving with Ohio’s 529 Plan, your savings can be used nationwide at any school that accepts federal financial aid. If the school has a Federal School Code on the Free Application for Federal Student Aid (FAFSA), then the withdrawals to cover qualified costs at that school will be tax free. This may even include international study programs. Therefore, you can use your 529 account almost anywhere you are comfortable sending both your student and your money.
The power of compound interest
While it’s never too late to start a college savings account, it’s best to start a 529 fund as early as possible to take full advantage of the power of compound interest. Compound interest is a dynamic tool that builds a 529 plan. It is the interest gained on contributions, earnings, and interest already accumulated in the 529 account. The longer a college 529 savings plan has time to grow, the longer compound interest can grow the account.
While compound interest in a 529 college saving plan is a huge advantage, compound interest with student loans is a huge disadvantage. By saving now with Ohio’s 529 Plan and earning interest on your 529 savings, your child can avoid paying student loans later with interest.
Tools to shape your 529 plan
Ohio’s 529 Plan has tools to help you build the 529 account that meets your family’s higher education savings goals. Use the College Savings Estimator to receive a projection of your child’s future college costs. This tool will also provide you with an estimated monthly contribution amount to reach your college saving goal. The Cost of Delaying calculator can approximate how much money you may need to set aside if you are getting a late start on saving for higher education expenses. The Tax Benefit calculator can show you the long-term advantages of tax-free growth in a 529 plan when compared to a taxable savings account.
You can also simplify your savings with automatic recurring contributions. These consistent contributions will be part of your budget so you can just set it and forget it. You can set up deposits to match your paydays or schedule monthly contributions. Even small investments can add up to big savings over time through regular automatic contributions or payroll direct deposits.
Ohio’s 529 Plan also offers account strategy suggestions based on your child’s age. These milestones are the perfect opportunity to start, ramp up your saving, and take advantage of Ugift and Upromise. Ohio’s 529 Plan also offers guidance on what you should be thinking at each key stage in your child’s life. Based on your child’s age, review the guidance, and choose for yourself the best path for your Ohio 529 account.
Pay Students Loans With A 529Families can pay for a student loan that qualifies for the federal student loan income tax deduction with a 529 distribution. There is a $10,000 lifetime limit for the beneficiary of a 529 account. However, an additional $10,000 can be used to repay the qualified student loans of the beneficiary’s siblings. All withdrawal requests must be made within the same calendar year in which the expense was incurred, or when the student loan payment was made.
8. BONUS: 529-to-Roth IRA rollovers
A new tax-free 529 qualified distribution was added as a benefit for account owners starting in 2024. Now, any remaining funds in a 529 account can be rolled over into a Roth IRA for the same beneficiary as the 529. There are prerequisites to use this new qualified distribution. First, a 529 account must be open for the beneficiary for 15 years. Second, 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. Third, you can only roll over 529 funds up to the yearly Roth IRA contribution limit, which is $7,000 for 2024. Fourth, the lifetime maximum 529 amount allowed for the Roth IRA rollover is $35,000.
This new benefit also addresses a concern of potential 529 savers of what to do with the 529 funds if their child decides not to pursue higher education or if they receive scholarships that more than cover their college costs. With the new 529-to-Roth IRA rollover, you can take those 529 education savings and give your children a jump starts on their retirement savings.
Whether you’re celebrating Valentine’s Day, observing Ash Wednesday, or looking forward to Leap Day 2024, it’s a great time to show your love to your children, or grandchildren, and their dreams. Open an Ohio 529 Plan to save for your child’s future career training and education. An investment in a 529 plan is an investment in your child. 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.com.
This article was originally posted in February 2019 and has been updated to reflect new information for 2024.