As your family increases in numbers through the years, you will always rework your family budget numbers. If you are including saving for your children’s higher education in that budget, you may want to have an individual Ohio 529 account for each child. Why? All the benefits of Ohio’s 529 Plan, CollegeAdvantage, are best used when each child has their own 529 account. And there are no fees to open an Ohio 529 account for each of them.
Maximize Ohio 529 tax benefits
529 accounts allow your savings to grow in a tax-advantaged manner. Separate 529 plans for each child would maximize these benefits, which include tax-free earnings–so all investment growth is yours to pay to college costs–and tax-free withdrawals when used to pay qualified higher education expenses.
For Ohio residents with an Ohio 529 Plan CollegeAdvantage account, whether parent, grandparent or other family member, there’s an additional tax advantage. Ohioans can deduct their 529 contributions from their Ohio taxable income, up to $4,000 per year, per beneficiary, with unlimited carry forward.
In other words, any Ohio resident can take up to a $4,000 deduction from their state income taxes for each 529 plan with a different beneficiary that they contribute to. Therefore, if an Ohio account owner has three Ohio 529 plans for three children or grandchildren, they could maximize this tax benefit up to $12,000 per year. In addition, unlimited carry forward for the state income tax deduction means that $4,000 per year is not a contribution cap. The taxpayer can continue to subtract $4,000 per year, per beneficiary, from their Ohio taxable income until all the Ohio 529 Plan contributions have been deducted.
Take advantage of tax-free withdrawals
When opening a 529 college savings plan, the account owner – typically a parent or a grandparent – has to select one beneficiary for the account. Therefore, if a family has one 529 account for the college savings for all the children, only the named beneficiary will be able to take advantage of tax-free withdrawals from the 529 account to cover their qualified higher education expenses.
For the other non-beneficiary children whose funds are included in a single 529 account, any distributions for their college costs would be subject to a 10% federal penalty as well as federal, state, and local taxes on the earnings portion of the withdrawal. If you are State of Ohio resident that has received the state tax deduction due to your contributions to Ohio’s 529 Plan, you will also be responsible for paying back any of the benefit related to the principal portion of the withdrawal.
In addition, the 529 withdrawal will only be sent to the account owner or the named beneficiary. The 529 withdrawal cannot be sent directly to the school for a child who is not named as the 529 beneficiary.
Different 529 investment strategies for different ages
Based on your children’s age, you should consider different 529 investment plan strategies for each of them. For instance, if one of your children has a long time before their higher education, then their 529 plan could have a more aggressive investment strategy potentially to reap higher returns with the increased risk. Their individual 529 account will also benefit from the growing power of compound interest.
On the flip side, if your child will need the 529 funds soon for upcoming college costs, then a more conservative investment strategy can be adopted for their individual 529 to avoid stock market volatility and protect the savings already accrued.
If all the college savings funds for all your children are kept in a single 529 plan, it may be difficult to modify the 529 account to benefit each child, according to when they will each start their education after high school. If you are wondering what steps you should be taking in managing your Ohio 529 education savings, here’s a to-do list. Also, there are different considerations to keep in mind when saving for your children’s education after high school; here’s what you should think about at each key stage.
Ohio's 529 Plan offers ready-made age-based portfolios and target enrollment portfolios, which adjust on a glide path from a more aggressive to a more conservative mix as your child’s post-high school plans draw near. Ohio’s 529 Plan also has ready-made risk-based portfolios to tailor a 529 college savings plan to the individual needs of the beneficiary.
529s pays many different kinds of higher education
Let’s say each of your children have chosen different career paths. One wants to go into a field that requires a four-year degree. Another sees the benefits of learning a trade. And another is brilliant at coding and wants to pursue a career through a certificate program. Their individual 529 savings in Ohio’s 529 Plan will cover the qualified costs for different kinds of required higher education. 529 funds can be used 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.
529s pay for K-12 tuition
Did you know that you can also use your 529 plan to pay K-12 tuition up to $10,000 per student, per year, for enrollment at public, private, or religious elementary or secondary school? If there are multiple accounts for a student, the combined 529 distributions to pay for their K-12 tuition is limited to $10,000 per year. Consult your qualified tax advisor for specific information. As this benefit is for one student only, you would need individual 529 accounts for each child to use Ohio’s 529 Plan to pay for each of their K-12 tuition.
Easy transfer of 529 savings
Another benefit of having multiple 529 accounts for multiple children is the ease of transferring funds from one 529 account to another. If one of your children (or grandchildren) finishes their higher education without using all the funds in a 529 plan, perhaps due to Pell Grants or scholarships, then you can change the current beneficiary to another member of the family. The 529 funds already set aside for one of your children’s college expenses can easily be transferred to a sibling or cousin who already has an account.
Or, the remaining 529 funds for one of your children can be used to pay principal and interest on any qualified education loans they have, as well as a sibling’s debt. The loan repayment provision applies to repayments up to $10,000 per beneficiary. The $10,000 is a lifetime amount, not an annual limit.
Gift tax rules benefits
Having individual 529 accounts for each child or grandchild also allow your family members to maximize federal gift tax benefits, since 529 plan contributions are considered gifts to the beneficiary. Per federal 529 laws, individuals can invest up to $17,000 ($34,000 for married couples) per beneficiary without incurring any federal gift-tax consequences. Additionally, an individual can even contribute up to $85,000 per beneficiary in a single year ($170,000 for married couples) and take advantage of five years’ worth of tax-free gifts at one time. By having multiple accounts for multiple children, an account owner can avoid triggering the federal gift tax.
For grandparents who are considering gift tax implications while evaluating their estate planning, 529 plans can be smart way to insure that a gift is used for a highly valuable asset — a higher education with the least amount of student loan debt. For further information, consult a tax adviser or estate-planning attorney.
Lessen The Impact On Financial Aid
529 plans are an asset on the Free Application for Federal Student Aid (FAFSA) and are a component in determining the Expected Family Contribution (EFC). The EFC is an estimate of what a family can cover of higher education expenses. The difference between the total cost of enrollment and the EFC represents the remaining costs that might be subsidized through financial aid.
Current federal guidelines state that the 529 account will be calculated up to 5.64% of its value when determining the EFC, if a student is a dependent and the 529 account is owned by a parent. Pooling college savings for multiple children in one 529 plan will make this account bigger; therefore, it could have a larger impact on EFC.
Again, there is no fee to open an Ohio Direct 529 account or multiple Ohio Direct 529 accounts so you don’t have to pay first to start saving for college.
For more than 34 years, 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 published in 2017 and has been updated with new information in 2023.