September is not only the back-to-school season, it’s also College Saving Month! Whether you’re watching your child board the school bus or you’re helping them log on to start a remote learning day, it’s never too late, and never too early to save for whatever education comes after high school.
Ohio’s 529 Plan, CollegeAdvantage, can help forward-thinking parents make college doable. We have information, tools, and resources to share with parents as they develop their post-secondary school savings strategy.
Why save in Ohio’s 529 Plan
With Ohio’s 529 Plan, you can maximize your savings with 529 tax benefits, which include:
- tax-free earnings so all investment growth is yours to use;
- tax-free withdrawals for qualified higher education expenses, those costs — tuition, room and board, computers, mandatory fees — which are required for enrollment at a post-secondary educational institute;
- State of Ohio income tax deduction for Ohioans for CollegeAdvantage 529 account. The current eligible amount for deduction is up to $4,000 per year, per 529 account beneficiary. 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.
Ohio’s 529 Plan can be used many schools nationwide
Saving for college in Ohio’s 529 Plan does not mean your child can only attend Ohio schools. You can use your Ohio 529 Plan funds almost anywhere that you are comfortable sending both your child and your money. 529 plans can be used at any federally accredited educational institution, that is a post-secondary school that accepts federally financial aid. If you want to confirm that the schools your child is interested in attending accepts federal aid, then do a search. If the institutions have a Federal School Code for the Free Application for Federal Student Aid (FAFSA), then you can use your 529 funds there, whether it’s two-year, four-year, graduate, vocational, trade, or any other post-secondary school.
New qualified costs
With the passage of the SECURE ACT component of the Further Consolidated Appropriations Act, certain apprenticeships costs — fees, textbooks, supplies, and equipment, including required trade tools— can now be paid with a 529 plan withdrawal. The apprenticeship program must be registered with the Secretary of Labor’s National Apprenticeships Act in order to use a 529 plan withdrawal. Interested parties can check the Labor Department’s search tool to confirm that a program is eligible.
The SECURE ACT also allows families to pay for any student loan that qualifies for the federal student loan income tax deduction with a 529 distribution. There is a $10,000 lifetime limit per 529 beneficiary. However, an additional $10,000 can be used to repay each of the siblings’ qualified student loans of the beneficiary. 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.
With the SECURE ACT 2.0, 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, starting on Jan. 1, 2024. There are some requirements in order to use this new qualified distribution. 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.
A 529 withdrawal can also be used to pay for K-12 tuition 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.
No more child care costs?
Is your child is starting school full-time? Child care costs are a huge disappearing expense, one of those costs that are part of your budget for a limited period of time. Why not roll over those some or all of those expenses to a regular 529 plan contribution? This way, those dollars you’ve previously prioritized for pre-K education will now support your child’s higher education. And as those bills were already part of your budget, you won’t be missing the money if you shift them to build the 529 plan. With $100 a month, you can build meaningful college savings no matter what kind of higher education your child pursues.
Tools to see your 529 savings add up
Ohio’s 529 Plan offers tools and calculators so you can create the 529 investment plan that’s right for your family. Start by answering the risk tolerance questionnaire to determine with which asset allocation mix you’d be most comfortable – conservative, moderate, or aggressive. Use the college savings estimator to estimate the cost of your child’s college education, then set goals for how much you want to save toward the total expense. If you’ve started to save for college in a regular savings account, work with the tax benefit tool to see how tax-free growth in a 529 plan really adds up. And if you haven’t started to save yet, the cost of delaying savings tool can illustrate the advantages of saving early with the power of compound interest growing in the 529 account.
Save with loved ones’ contributions
Family and friends want to commemorate the big events in your child’s life. If they ask for gift ideas, tell them that they can help with the next big milestone in your child’s life – their higher education —with a contribution to your child’s 529 plan. With Ugift, it’s simple for anyone to contribute to your CollegeAdvantage Direct Plan account. Log in to your 529 account and click on Ugift to receive a unique code for your account. This code permits others to make online contributions to your 529 plan without needing the actual account number. Once they have the Ugift code, friends and family can visit Ugift529.com to make their electronic contribution securely from their bank account. The gift giver can make one-time or recurring electronic contributions at any time, and if they are an Ohio taxpayer, they can deduct their contributions up to $4,000 from their Ohio taxable income.
It's never too late to start saving
If you haven’t started to save for college costs, it’s never too late to open an account with Ohio’s 529 Plan. Every dollar saved is a dollar that isn’t borrowed, which makes a 529 college savings plan an excellent alternative to student loan debt. Even small 529 plan deposits can grow through the power of compound interests, tax-free earning, and tax-free withdrawals for qualified higher education expenses.
Honors for Ohio’s 529 Plan
If you are ready to start saving for your children’s higher education after high school and want to learn more about tax-advantaged 529 plans, Saving For College is an unbiased, industry-trusted informational website, which provides detailed analysis and articles on 529 plans, financial aid, and scholarships, as well as tools to estimate college expenses.
Saving For College consistently recognizes Ohio’s Direct 529 Plan as one of the best plans in the nation for both Ohioans and non-Ohio residents.
Savingforcollege.com also ranks the nation’s 529 programs based on how well they serve both in-state and out-of-state residents with its 5-Cap Rating. Ohio’s Direct 529 Plan has earned the top 5-Cap Rating for both in-state and out-of-state residents as of Dec. 15, 2022. This makes Ohio’s 529 Plan one of only seven Direct 529 plan nationwide to achieve this honor for both in-state and out-of-state residents.
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.”
Visit Ohio’s 529 Plan online to start saving today for your child’s future education. An investment in a 529 plan is an investment in your child where every dollar saved today is a dollar that doesn’t have to be borrowed later. Learn, plan and start with Ohio’s 529 Plan today at CollegeAdvantage.com.
This article was originally posted in August 2020 and has been updated to reflect new information for 2023.