As April, also known as Financial Literacy Month, comes to a close, test your knowledge of 529 plans and potentially learn something new about these tax-free higher education savings plans. Ohio’s 529 Plan, CollegeAdvantage, is offering up a quick true-or-false quiz to see (show off) all you know.
If you save in a state’s 529 plan, then your child can only go to a school in that state.
Let’s say you’re saving in Ohio’s 529 Plan. Your child can attend any higher education institution nationwide that accepts federal financial aid, whether or not it’s in the great State of Ohio. The quickest way to confirm that the school to which your child may want attend in the USA does accept this government aid is to see if it has a Federal School Code on the Free Application for Federal Student Aid (FAFSA).
If you save in a 529 plan, then your child can only go to a four-year college.
529 plans can be used at traditional four-year colleges or universities, as well as two-year community colleges, trade or vocational schools, and certificate programs. With the passage of SECURE Act at the end of 2019, 529s can now be used to pay for certain qualified costs for apprenticeship programs, which have been accredited by the U.S. Department of Labor.
If my child doesn’t go to college, I will lose the money saved in my 529.
You always have access to the funds saved in your Ohio 529 account and you always have options when they’re used…and when they’re not used.
First, 529 plans can be used many types of higher education. If the program your child is interested in has a Federal School Code, then you can use your 529 plans. If your child wants to attend a welding school after high school, you can use your 529 plan to cover qualified costs there as long as the school accepts federal financial aid.
Also, 529 plans have no time constraints. So, you can wait for when your child rethinks their decision about education after high school.
If they still decide against continuing their education, you can transfer the 529 account to any family member. That’s anyone who is related by blood, marriage or adoption. So the money you set aside for their higher education can be transferred to a sibling, a cousin, or even yourself.
A major tax advantage of a 529 plan is tax-free withdrawals for qualified higher education expenses. If however, you reach a point where your 529 account is simply not going to be used, you can request a non-qualified withdrawal from your 529 plan. Now, the earnings-only portion of the withdrawal will be taxed at 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 when those funds aren’t used for qualified higher education expenses. As the 529 account owner, you can also 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.
If my child gets a scholarship, I can still use the 529 savings to cover other costs.
529 plans are made to work with scholarships so your 529 plan is still an important component of your college-saving strategy. Very few scholarships cover 100% of the costs; for instance, a scholarship may only cover the cost of tuition.
A 529 plan is perfect for filling any gaps for other qualified expenses such as: room and board during any academic period the beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology and services; books; supplies; and equipment required for enrollment or attendance; and certain expenses for a special-needs student.
You can withdrawal the exact amount of the scholarship from your 529 account. This would be treated as a non-qualified withdrawal, but only the earnings portion the withdrawal will be subject to federal and state taxes. A scholarship withdrawal is exempt from the 10% federal tax penalty.
I have to pay a fee to start saving in Ohio 529 Plan.
There is no fee to open an Ohio 529 Plan. To start a 529 account, the first contribution you make goes directly into the accounts. It’s that simple. You can start an Ohio 529 for as little as $25.
A 529 account can be used for whatever comes after high school. lf you’d like to do more research, explore Ohio’s 529 Plan —The Plan That Can — at CollegeAdvantage.