As a parent, you show your love to your children in many ways, which can include saving what you can for their higher education. After all, college savings is an investment in their future! For Valentine’s Day 2023, here are seven reasons (plus a bonus one!) to love Ohio’s 529 Plan, CollegeAdvantage.
Fall For “Whatever School Comes After High School” 529 Plans
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 529 plan at any federally accredited educational institution – whether for an associate, bachelor’s, professional, or vocational degree. In fact, your child can also use a 529 plan to cover qualified expenses for graduate school, whether for the master's, doctoral, medical, or law degree.
Certain apprenticeships costs — such as fees, textbooks, supplies, and equipment, including required trade tools— can 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 tax-free withdrawal from a 529 plan. Interested parties can check the Labor Department’s search tool to confirm that a program is eligible.
Fall For The Flexibility of 529 Plans
You have all kinds of flexibility when it comes to using your 529 plan. You use your 529 savings at thousands of post-secondary schools, including trade, technical and vocational schools, community colleges, apprenticeships, certificate programs, and traditional four-year universities. Your 529 account also pays tax-free most of the required costs to attend a program like tuition, room and board–on and off campus, mandatory fees, computers and related internet services and much more.
You have all kinds of flexibility in your investment options as well. 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 from Fifth Third Bank.
As the account owner, you have the flexibility of naming the beneficiary of the 529 college savings account. If the original beneficiary receives a full-ride scholarship or if they decide not to pursue education after high school, you can select a new beneficiary of the account without any fees as long as they are a member of the family – related by either blood, marriage, or adoption. You can also hold onto the 529 education savings to see if your original beneficiary changes their mind, as there is no time limits to when the funds must be used. And starting on Jan. 1, 2024, there will be one more benefit added to 529 plans, which can help your children’s retirement. This new qualified distribution will be covered at the end of this article.
What if your child decides to attend a military academy after their high school graduation and, therefore, does not need their college saving account? You may make a non-qualified withdrawal up to the estimated cost of attendance within the same calendar year at a military academy without incurring an additional 10% federal tax penalty. The earnings portion only of this withdrawal will be subject to federal and state income taxes. Or you can change to beneficiary of the 529 to another member of the family with no fees.
Fall For “Save Here, Go Anywhere” 529 Plans
You may have saved in Ohio’s 529 but your college savings plan can be used nationwide at any school that accepts federal financial aid. 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.
Fall For The Tax Advantages Of 529 Plans
For over 33 years, Ohio’s 529 Plan has helped families across the nation save money for their children’s future higher education costs with tax-advantaged benefits. First, all contributions and earnings grow tax free in a 529 college savings plan, so all investment growth is yours to use to cover qualified costs. Second, a 529 withdrawal is tax free when used to pay qualified higher education expenses — those costs that are mandatory to attend a school. Third, Ohio residents who own an Ohio 529 can deduct their 529 contributions from their Ohio 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.
Fall For The Power of Compound Interest In 529 Plans
While it’s never too early or too late to start a college savings account, it’s best to start a 529 fund as early as possible to take full advantage of the power of compound interest. Compound interest is a dynamic tool to build a 529 plan as it is the interest gained on contributions, earnings, and interest already accumulated in the 529 account. The longer a college savings plan has time to grow, the longer compound interest can grow the account.
While compound interest in a 529 college saving plan is a huge advantage, compound interest with student loans is a huge disadvantage. By saving now with Ohio’s 529 Plan and earning interest, your child can avoid paying student loans later with interest.
Whether you’ve started saving for your child’s higher education before they are born or if you are getting a later start, Ohio’s 529 Plan offers account strategy suggestions based on your child’s age. These milestones are the perfect opportunity to start, ramp up your saving, and take advantage of Ugift and Upromise. Ohio’s 529 Plan also offers guidance on what you should be thinking at each key stage in your child’s life. Based on your child’s age, review the appropriate guidance and choose for yourself the best path for your 529 account.
Fall For Tools To Shape Your 529 Plan
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.
Fall In Love With Paying Students Loans With A 529
The 2020 SECURE Act allows families to pay for a student loan that qualifies for the federal student loan income tax deduction with a 529 distribution. There is a $10,000 lifetime limit for the beneficiary of a 529 account. However, an additional $10,000 can be used to repay the qualified student loans of the beneficiary’s siblings. 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.
BONUS: Fall In Love With Roth IRA Rollovers
The 2022 SECURE 2.0 Act added another qualified distribution for 529 plans. Starting Jan. 1, 2024, any remaining funds in a 529 account can be rolled over into a Roth IRA for the same beneficiary as the 529. 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, 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. Third, you can only roll over 529 funds up to the yearly Roth IRA contribution limit, which is $6,500 for 2023. Fourth, the lifetime maximum 529 amount allowed for the Roth IRA rollover is $35,000.
This new benefit also addresses a concern of potential 529 savers of what to do with the 529 funds if their child decides not to pursue higher education or if they receive scholarships that more than cover their college costs? With the new Roth IRA rollover option, you can take those 529 education savings and give your children a jumpstart on their retirement savings.
Valentine’s Day — or any day — is a great time to show your love to your children and their dreams. Open an Ohio 529 Plan to save for your child’s future training and education. An investment in a 529 plan is an investment in your child. 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 program nationwide that accepts federal financial aid. Learn, plan, and start for as little as $25 today at CollegeAdvantage.
This article was originally posted in February 2019 and has been updated to reflect new information for 2023.