Hopefully you have already filed your 2024 income taxes. If you are expecting a tax refund, you may already have plans on how to use it to help your family’s finances, whether by paying off debt or building up your emergency fund. Another option is use your tax refund to open, or make, a contribution to Ohio’s 529 Plan, CollegeAdvantage, and save for your children’s education or career training after high school.
If You Don’t Have An Ohio 529 Account
There are three big tax benefits for saving in an Ohio 529 account: tax-free earning, tax-free withdrawals, and a state income tax deduction for Ohioans who contribute to Ohio’s 529 Plan. As an Ohioan, if you had saved in Ohio’s 529 Plan in 2023, you would have been able to deduct up to $4,000 off your Ohio state income tax for making 529 contributions.
Also, the $4,000 state income tax deduction is per beneficiary, per year, with unlimited carry forward. So, if you contribute $4,000 to one child’s Ohio 529 account and $4,000 to another child’s Ohio 529 account, then you could take $8,000 off your Ohio state taxable income. Or if you were able to contribute more than $8,000 to one child’s Ohio 529 plan, then you can take $4,000 off your state income for 2023, and again in 2024, with the unlimited carry forward.
If you couldn’t claim the State Of Ohio income tax deduction for contributions made to Ohio’s 529 college savings account because you don’t have one, then don’t wait any longer!
529 plans aren’t just for traditional four-year colleges or universities. Maybe your child is interested in starting at a community college or earning an associate degree. Maybe they want to learn important skills at a trade or vocational program. Or they show great aptitude in a certain field and want to pursue an apprenticeship in it.
You can use your Ohio 529 account for an education or career training nationwide at any school that accepts federal financial aid – whether for an associate, bachelor’s, professional, or vocational degree. 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 some international study programs. Therefore, you can use your 529 account almost anywhere you are comfortable sending both your student and your money.
As for the other two tax advantages, 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 529 higher education 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. 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.
You can even make a tax-free 529 withdrawal to an additional qualified expense: a K-12 tuition payment at a private, public, or religious 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.
If You Have An Ohio 529 Account
This tax season is a great time to check on your savings progress towards reaching your higher education goals with your Ohio 529 account.
Ohio’s 529 Plan offers tools and calculators to help you build a 529 savings plan that best fits your family’s needs. You can adjust your savings goal for your child’s future education or career training to make sure you are on track. You can also compare long-term tax benefits of saving in Ohio’s tax-free 529 Plan when compared to a taxable bank account. Additionally, you can use the tools to see what your estimated 529 account total could be by depositing monthly automatic deposits, or by increasing the dollar amount or the frequency of 529 plan contributions.
Also, you can time your 529 contributions to align with paydays or set up a monthly contribution schedule. Just log in to your Ohio 529 account and select “Automatic Investments” from the Asset Management menu to adjust the amount or frequency of your contributions. Every amount deposited into a 529 account, whether big or small, can help you reach your savings goal.
Also, take the opportunity to review your child’s time horizon to college and determine if modifications are needed to your Ohio 529 college savings plan. If your child is just in kindergarten, you have more time to save even more and take advantage of the power of compound interest. If your child is in middle or high school, you may want to accelerate your savings. Even if your child is in college, you can still save in your Ohio 529 account and take advantage of tax-free earnings, tax-free withdrawals for the next round of qualified higher education expenses, and the state of Ohio income tax deduction for 529 plan contributions for residents of Ohio only.
Saving for an education or career training for your children is a forward-looking action plan. No matter the age of your child, it is never too early, and it is never too late to start saving for them.
Since 1989, Ohio’s 529 Plan has been helping families across the nation save for their children’s higher education. Ohio’s 529 Plan covers qualified expenses 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.
