While driving, have you seen the bumper sticker that proclaims, “My kid and my money to go (insert the name of school here)?” Does it make you smile or does it make your heart beat a little quicker? Whether college is right around the corner or you’re still dealing with diapers, Ohio’s 529 Plan, CollegeAdvantage, is here to help you save for your child’s future college costs.
“The credit card debt in the US has reached almost $1 trillion whereas the student loan debt stands at $1.75 trillion and growing. This is alarming and action must be taken to reverse the direction of student loan debt,” said Tim Gorrell, former executive director of Ohio’s 529 Plan. “Planning for whatever comes after high school - college, trade school, technical school, etc. - and participating in a sound savings and investment plan will make these goals a reality. Going into a new career debt free should be the norm as opposed to entering the workforce with years of debt repayment ahead.”
Ohio’s 529 Plan is your solution to student loan debt. The recent news about Ohio’s student loan indebtedness may be disconcerting but forward-thinking parents can make college doable with Ohio’s 529 Plan, CollegeAdvantage. Here’s how:
529 Plan Tax Benefits
529 accounts are tax-advantaged college savings plans. What are these tax benefits?
- Tax-free earnings. A regular savings account will have taxes assessed yearly but a 529 investment plan grows tax-free at the federal and state level. To see how tax-free growth adds up with a 529 savings plan, use the tax benefit tool to show the savings in taxes between a 529 to a taxable account. Unlike a taxable account, a CollegeAdvantage 529 plan ensures that every bit of investment growth is yours to use, tax-free.
- Tax-free withdrawals. Funds withdrawn from 529 plans are tax free when used for qualified higher education expenses. What are these expenses? Costs that are necessary for enrollment or attendance at an eligible education institution like: tuition, mandatory fees, computer equipment and related technology and services, books, supplies, and equipment required for enrollment or attendance; room and board costs or off-campus housing during any academic period in which the beneficiary is enrolled at least half-time; and certain expenses for a special-needs student.
- State income tax deduction for contributions to Ohio’s 529 Plan. As a resident of Ohio, you can currently deduct 529 contributions up to $4,000 per beneficiary, per year from your state income tax. However, with unlimited carry forward you can continue to deduct a large 529 plan contribution from your state income tax until all of it has been deducted. For instance, if you contribute $12,000 to your beneficiary’s account, you can deduct $4,000 from your state income tax for the next three years.
Many 529 Investment Options
The CollegeAdvantage Direct Plan offers a variety of investment options. You can also use our tools and calculators to determine your savings goals. After reviewing this information, you can start to build a 529 investment portfolio that best fits your family’s needs. The CollegeAdvantage Direct Plan offers target-enrollment portfolios, ready-made, risk-based portfolios, individual investment vehicles, and FDIC-insured banking options. Ohio’s Direct 529 plan has partnered with leading investment managers Vanguard, Dimensional Fund Advisors, and Fifth Third Bank. to provide these 529 investment options.
Every year, trusted financial industry investment research and management company, Morningstar, reviews the nation’s 529 college savings programs. Once its analysis is complete, Morningstar ranks the 529 plans. In its November 2022 report, Ohio’s CollegeAdvantage Direct 529 Plan maintained its silver rating for the tenth year in a row. In addition, BlackRock CollegeAdvantage, Ohio’s Advisor 529 Plan retained its bronze ranking. This makes Ohio one of only three state programs that have both their Direct and Advisor 529 Plans ranked as medal-class college savings programs by Morningstar. The high ranking for both CollegeAdvantage 529 Plans highlights the strength of these two college savings plans as well as the industry’s regard for Ohio’s 529 Plan as one of the best in the nation.
Forbes Advisor ranks Ohio’s 529 Plan as one of the six best college savings programs in the nation. According to their explanation: “Ohio’s 529 Plan comes with features in line with the other plans on our list, including low fees, a range of investment options and a tax deduction for Ohio taxpayers. … The plan also comes with a minimum contribution, both to open the account and for each contribution thereafter. But it is small ($25) and likely manageable for many plan participants.”
Also, CNBC selected Ohio’s 529 Plan as one of the five best programs nationwide. As they wrote, “There isn’t much not to like about the CollegeAdvantage 529 plan — there’s a good mix of investment options (including FDIC-insured accounts), low fees and plans from top companies like Dimensional Fund Advisors. In fact, overall management fees are some of the lowest we’ve seen. Combined with low expense ratios, this makes this plan one of our top picks.”
Money Inc. ranks Ohio’s 529 Plan, CollegeAdvantage, second in its list of the top ten 529 programs nationwide. They highlighted the “tax break for Ohio residents, a diverse selection of investment alternatives, and low fees.”
The Gift That Keeps On Giving – Compound Interest
It’s never too late or too early to save for your child’s future college costs. However, if you set aside college savings in a 529 plan early in your child’s life, the 529 account will benefit from compound interest through investing over the years. Compound interest is a saving powerhouse as it is the “interest computed on the sum of an original principal and accrued interest,” according to Merriam-Webster Dictionary. For 529 plans, compound interest is based on contributions, earnings, and interest already accumulated in the account.
Compound interest in a 529 college saving plan is a huge advantage; yet, compound interest with student loans is a huge disadvantage. This is why 529 plans are a great alternative to student loan debt, which currently stands at $1.76 trillion held by 45 million borrowers in America. Saving now for post-secondary education or training is far cheaper than paying off student loans debt later in life.
Ohio’s 529 Plan Can Be Used Nationwide
Saving for college in Ohio’s 529 Plan does not mean your child is limited to only attending Ohio schools. 529 plans can be used nationwide (and even overseas) at any accredited two-year, four-year, graduate or professional, or any other post-secondary schools that accepts federal financial aid.
Get To Know Ohio’s 529 Plan
For more than 33 years, Ohio Tuition Trust Authority (OTTA) has been helping families save for college. OTTA is the state agency that sponsors Ohio’s 529 program, CollegeAdvantage. Currently, Ohio’s 529 Plan is the seventh largest college savings program in the nation. With assets under management valued over is $14.28 billion, Ohio’s 529 Plan has been entrusted with over 680,000 college savings accounts.
No matter the age of your child, CollegeAdvantage is how forward-thinking parents make college doable. Use our online tools and calculators to build the 529 plan that suits your family’s needs. Start your tax-advantaged college savings plan today at CollegeAdvantage.com. And remember, Ohio’s 529 Plan is the solution to student loan debt.
The article was originally published in September 2017and have been updated in March 2023 with new information.