Based on the events of the past few years, there has been a renewed call to increase our country’s financial education. To support this growing emphasis on knowing monetary basics, April has been designated as Financial Literacy Month for 2024.
A 529 plan is one financial tool where increased awareness is needed. According to the 2023 How America Pays For College Report by Sallie Mae, only 30 percent of families saving for college are using a 529 plan. Ohio’s 529 Plan, CollegeAdvantage, would like to highlight all the benefits of saving for a education after high school or career training in a 529 plan, as well as answer some of most frequently asked questions.
What are the tax benefits of saving in Ohio’s 529 Plan?
There are several tax benefits to saving in a CollegeAdvantage Direct 529 Plan account.
First, earnings in a 529 plan grow tax-free, so all investment growth will be yours to spend on your children’s future qualified expenses. Compound interest — the interest earned on contributions, earnings, and interest already accumulated in the 529 account — is included in the tax-free earnings.
Second, 529 plan withdrawals to pay for qualified higher education expenses are tax-free at accredited colleges, universities, two-year schools and certificate programs that accept federal financial aid. These qualified costs are the mandatory expenses to attend the school or program such as 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.
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 to use a 529 plan withdrawal.
Finally, Ohio residents who contribute to Ohio’s 529 Plan, can deduct up to $4,000 per year, per beneficiary, off their state income taxes with unlimited carry forward. Therefore, if you contribute more than $4,000 in one year, you can continue to subtract $4,000 per year, per beneficiary, from your State of Ohio taxable income until all the 529 contributions are deducted.
What if my child doesn’t go to an Ohio school?
If you have been saving in Ohio’s 529 Plan for your child or grandchild, then you can use your 529 account can be used for whatever comes after high school anywhere in the United States. So, there are over 30,000 schools nationwide that you can use an Ohio 529 account. If the school has a Federal School Code on the Free Application for Federal Student Aid (FAFSA), then withdrawals for the qualified higher education expenses at that school will be tax free.
What if my child doesn’t want to go to a four-year school?
529 plans can be used for your child's education or career training after high school – whether for a two-year, four-year, graduate or professional degree, certificate programs, registered apprenticeships programs, or any other post-secondary credential. This list includes community colleges and technical schools, vocational or trade schools, graduate schools, and even some study-abroad programs. Again, If the school has a Federal School Code on FAFSA, then withdrawals for the qualified higher education expenses at that school will be tax free.
What if we’re expecting financial aid?
When filling in FAFSA, your 529 account is considered an asset. When owned by a parent, the 529 plan funds are assessed at a maximum of 5.64% of its value. Therefore, if you, as a parent, have saved $10,000 in Ohio’s 529 Plan account, only $564 would count against your child’s potential eligibility for federal financial aid. Starting with the 2024-25 academic year, grandparent-owned 529 plans will have no impact on a grandchild’s eligibility for financial aid as it will no longer be counted as an asset on FAFSA.
What if my child gets a scholarship?
Your Ohio 529 account is still an important component of your college saving strategy even if your child earns scholarships. Very few scholarships cover 100% of the costs. A 529 plan is perfect to pay for the other qualified expenses not covered by the scholarships, such as room and board.
If your child does receive a full-ride scholarship, you can withdrawal the matching amount of the scholarship from your 529 plan. As this is a non-qualified withdrawal, you will have to pay taxes on the earnings portion.
What if my child doesn’t go to college?
You always have access to the money you have saved in Ohio’s 529 Plan. So, if your child decides not to pursue their education or career training after high school, you have options. First, hold onto to the account to see if your child rethinks their decision for there are no time limits using a 529 account. In the meantime, let the 529 plan sit and watch the tax-free earnings continue to grow. If your child definitively decides that they don’t want a higher education, you can transfer the funds to any member of the family of your beneficiary, including yourself, without any tax consequences. A member of the family is anyone related to the original beneficiary by blood, marriage, or adoption.
As of Jan. 1, 2024, there’s another option with the 529 plan that’s not being used: 529-to-Roth IRA Rollover. With the new tax-free and penalty-free Roth IRA rollover option, you can take those 529 education savings and give your children a jump start on their retirement savings. However, your 529 account must fulfill certain qualifications to do this rollover.
You also have the option of withdrawing all the funds from your 529 plan. There will be a 10 percent federal tax penalty as well as taxes assessed at the state and federal level on the earnings portion only of the withdrawal.
Does Ohio 529 have an app?
For quick access your college savings account, Ohio's 529 Plan offers the READYSAVE 529 app. Our app makes it easy for you to access your account information, track account growth, and make both one-time and recurring contributions from the bank account on file from your cell phone. And with the app, you can send invitations to your loved ones to contribute to your child’s higher education via Ugift.
You can download the READYSAVE 529 app now from the Apple and Google Play app stores. Once you install the app, select Ohio’s 529 Plan from the list and log in with the same username and password you use to access your account online.
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 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 March 2020 and has been updated to reflect new information for 2024.
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