Why is money called dough? Because we all knead it!
Why did the man put his money in the freezer? He wanted cold, hard cash!
What type of investment do Wall Street traders call a “007?” A bond.
For April Fools’ Day 2024, we’re setting all jokes aside. The truth is Ohio’s 529 Plan, CollegeAdvantage, is the best way to save for education and career training after high school. Here’s why.
Ohio 529 tax benefits are no joke
You can save for whatever education and career training that comes after high school for your children and grandchildren with Ohio’s 529 Plan. And it’s all tax-free.
Your contributions grow tax-free in Ohio 529 so all earned income is yours to cover qualified costs. With the power of compound interest, all the growth you receive from the interest gained on contributions, earnings, and interest already accumulated in the 529 account will still be tax-free. The longer a college savings plan has time to grow, the longer compound interest can grow the account.
Additionally, 529 withdrawals are tax free when used to pay qualified higher education expenses — those costs that are mandatory to attend a school. This includes tuition, room and board, mandatory fees, computer equipment and related technology as well as internet services; books, supplies and equipment related to enrollment and class schedule; and certain expenses for a special-needs student. 529 withdrawals for qualified apprenticeships costs such as fees, textbooks, supplies, and equipment like required trade tools are also tax-free.
You can even make a tax-free 529 withdrawal to pay for K-12 tuition at a private, public, or parochial elementary or secondary school. There is a limit of $10,000 per year that can be withdrawn from a 529 account to pay for the K-12 tuition. If your child has more than one 529 plan, then the combined qualified distributions from all the 529 accounts for K-12 tuition is limited to $10,000 a year. Consult your qualified tax advisor for specific information.
Lastly, Ohio residents who own an Ohio 529 can deduct their 529 contributions from their state 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.
Where can you use your Ohio 529?
Ohio’s 529 Plan can be used for whatever education comes after high school, including federally accredited trade and specialty schools, apprenticeships, community colleges, certificate programs, four-year universities and colleges, graduate school, law school, and medical school.
In order to use your 529 savings at a school, it needs to accept federal financial aid. To check that the school your child is interested in attending does receive federal financial aid, visit the website of Federal Student Aid, the agency that runs the Free Application for Federal Student Aid (FAFSA) program. If the school has a Federal School Code on the FAFSA website, then you can pay for qualified costs there with a tax-free 529 withdrawal.
For apprenticeships, the program must be registered with the U.S. Secretary of Labor’s National Apprenticeships Act in order to use your 529 savings there.
You may have saved in Ohio’s 529 but your higher education savings plan can be used nationwide at any school that has a Federal School Code on FAFSA and the withdrawals to cover qualified costs at that school will be tax-free. This may even include some international study programs. Therefore, you can use your 529 account almost anywhere you are comfortable sending both your student and your money.
Is there help to shape your Ohio 529 account?
Ohio’s 529 Plan has calculators and tools to help you build the 529 account that meets your family’s college savings goals. Use the college savings estimator to receive a projection of your child’s future college costs. This tool will also provide you an estimated monthly contribution amount to reach your college saving goal. The cost of delaying savings calculator can approximate how much money you may need to set aside if you getting a late start on saving for higher education expenses. The tax benefit tool can shows you the long-term advantages of tax-free growth in a 529 plan when compared to a taxable savings account.
You can also simplify saving with automatic recurring contributions. These consistent contributions will be part of your budget so you can just set it and forget it. You can align deposits with your paydays or schedule monthly contributions. Even small investments can add up to big savings over time through regular automatic contributions or payroll deductions.
What investment options can you use in Ohio’s 529?
Like a 401(k), you need to select in what investment options to place your savings. Ohio's 529 plan offers ready-made target enrollment portfolios, ready-made portfolios based on risk level, 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—529 savings accounts and 529 Certificate of Deposits (CDs)—from Fifth Third Bank.
What are some other uses for an Ohio 529 account?
One question that all 529 programs are asked is what if their child decides not to continue their education or training after high school. There are always options available if your child doesn’t want to start using their 529 plan immediately after graduation.
Besides holding on to your 529 account to see if your child changes their mind about higher education after they enter the work force, you can transfer the 529 funds to another beneficiary, who must be a family member* to your child — this can include siblings, stepsiblings, stepparents, cousins, nieces and nephews. You could also hold onto the account for your grandchildren’s future college costs since there are no time limits for using 529 plans.
You can also make a 529 withdrawal from the account to pay of the principal and interest on qualified education loans for the 529 beneficiary 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.
Another use for an Ohio 529 account is to give your child a start on their retirement savings. Beginning Jan. 1, 2024, families with leftover funds in their 529 accounts can rollover it over to a Roth IRA for the same 529 beneficiary without incurring any penalty on the earnings. There will be some requirements to use this new qualified distribution once available. 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—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. 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.
If you reach a point where your 529 plan 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 on the earnings portion of the withdrawal for withdrawing money from the 529 plan for costs that aren’t considered qualified higher education expenses. 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 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 programs, or continuing education classes nationwide that accepts federal financial aid. Learn, plan, and start for as little as $25 today at CollegeAdvantage.com.
* Internal Revenue Code Section 529 defines a family member as: a son, daughter, stepson or stepdaughter, or a descendant of any such person; a brother, sister, stepbrother, or stepsister; the father or mother, or an ancestor of either; a stepfather or stepmother; a son or daughter of a brother or sister; a brother or sister of the father or mother; a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law; the spouse of the Beneficiary or the spouse of any individual described above; or a first cousin of the Beneficiary. Gift or generation-skipping transfer taxes may apply. Please consult with your tax advisor for further information.
