How Do New Tax Changes Promote 529 Investments
The Consolidated Appropriations Act of 2021 is one example of recent tax changes that should promote 529 investments by treating non-custodial accounts differently than before. This should have an impact on non-parent-owned 529 accounts when assessing financial aid eligibility. However, this wont come into effect until the 2024 2025 school year. This gives ample time to speak to a qualified tax advisor if this affects you.
How To Choose A 529 Plan
When it comes time to choose the best 529 plan for your family, look at whats available within your home state first. Many plans offer special incentives such as tax breaks for state residents, so you may find a better deal by starting your search at home.
Once youve noted the details of your home states plan, compare it to other states offerings. As you review each 529 plan, pay attention to the following factors.
Which States Offer Tax Credits
Indiana, Minnesota, Oregon, Utah, and Vermont provide tax credits, which families can use to offset their state income taxes. These credits, on average, offer greater tax savings to a broader range of families than deductions do. Oregon’s maximum tax credit for joint filers is $300, which can be met with a relatively low contribution of $1,200. For those earning $100,000, the percentage of contribution eligible for tax credit is 25%, but this percentage is higher for families with lower incomes . Minnesota also offers larger benefits to families earning less, as it offers the option of a deduction or a more generous credit. Like Oregon, the tax credit calculation is adjusted by income level. For those earning less than $80,430, the maximum credit of $500 can be earned with a relatively low contribution of $1,000 . The calculations for tax credits in Indiana and Vermont are a little less generous than Minnesota and Oregon, but the dollar amounts are significantly higher than the states with deductions. In Indiana and Vermont, a $3,000 contribution would result in tax credits of $600 and $300, respectively. Indiana has a high $1,000 state tax credit limit, per taxpayer. Vermont’s state tax credit maximum is $500, but this is per beneficiary. Utah employs a relatively low 4.95% of contribution to calculate the tax credit, so a $3,000 contribution would result in a tax credit of $149.
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Ohio’s 529 Plan State Income Tax Deduction Is $4000
As 2022 starts, lets review of some of the many benefits of saving for college in Ohios 529 Plan. The list includes the power of compound interest, a wide variety of investment options, tax-free earnings, and tax-free withdrawals. For Ohioans saving with Ohios 529 Plan, theres also a deduction from their state taxable income for contributions made to CollegeAdvantage of up to $4,000 per year, per beneficiary.
Please note that if you received a higher education refund for your students room and board or other fees at any point in 2020 and you placed those funds back into your Ohio 529, you cannot include that recontribution amount to your yearly contribution total.
Military Academy Attendance And 529s
What if youve been saving for college in a 529 plan and your child is selected to attend an U.S. military academy? You still have access to the college savings funds. While considered a non-qualified withdrawal, the parents can ask for a 529 plan disbursement up to the estimated cost of attending the military academy without incurring a 10% federal tax penalty. The earnings portion only of the withdrawal may be subject to federal, state, and local taxes.
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Tax Deductions By State
There are no federal tax deductions for a 529 plan, but some states do offer deductions on in-state plans. Others offer tax breaks on 529 plan contributions in any state or utilize a tax credit. Depending on where you live or where you started your 529 plan, you could be eligible for one of these benefits.
Wide Variety Of 529 Investment Choices
Ohios 529 Plan offers ready-made age-based portfolios the Advantaged Age-Based Portfolio and Vanguard Ready-Made Age-Based Portfolios that reflect college-savings industry standards of smoother glide paths. A glide path determines the asset allocation mix within an investment option.
With age-based 529 investment options, the asset allocation mix is created through age bands. When the beneficiary is young, there are more stocks in the portfolio. Why? Stocks are affected by market volatility. Therefore, if there is an economic downturn while your child is young, there will also be more time for the college savings plan to recover. As the beneficiary grows older, the mix adjusts with each new age band, reducing the amount of equity and increasing the amount of more conservative investments such as fixed-income and cash preservation options.
You can also create your own 529 college savings plan with a wide variety of investment choices from our partners Vanguard, Dimensional Fund Advisors, and Fifth Third Bank. You can build your investment portfolio with international equity options, U.S. equity options, balanced options, fixed-income options, capital preservation option, and banking options.
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Plans Vs Other Savings Accounts
Ohio residents trying to decide whether they should use an Ohio 529 plan or other savings vehicles need to account for the potential savings of a state income tax deduction. While the deduction is attractive, it may not offset the benefits of using other, nondeductible accounts, such as a Coverdell Education Savings Account or Uniform Transfers to Minors or Uniform Gifts to Minors custodial account.
Talk to your financial advisor or a similar professional about which plan is likely to give you the greatest benefit.
Prepaid Tuition Vs 529 Plans
There are two types of 529 plans, each of which offers different benefits and risks.
529 Savings Plans
These plans let you invest money in vehicles such as mutual funds or exchange-traded funds . If you use the money for qualified educational expenses, youll pay no taxes on your earnings. In addition, some states offer added tax benefits, such as allowing savers to deduct 529 contributions on their taxes. Because of the variety of state plans available, shop around and see which benefits you most.
Prepaid Tuition Plans
These types of plans allow you to purchase tuition credits at participating colleges at todays prices, and the plans beneficiary can use those credits later when they attend the school. These plans have more restrictions and are less common than 529 savings plans.
Prepaid plans can typically only be used for tuitionnot room and board or other costs. They are also more likely to have state residency requirements, and the beneficiary must attend a participating school to get the full benefit of these plans.
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Maximize Your Ohio 529 Plan Tax Benefits By Dec 31
With the new year right around the corner, Ohios 529 Plan is encouraging Ohioans to resolve to make saving for higher education a priority in the new year by getting a head start in 2019 before the year comes to a close. When Ohioans enroll and/or contribute to an Ohio 529 savings plan, they can claim a deduction up to $4,000 per beneficiary on their state of Ohio taxable income. All contributions for 2019 must be received in good order .
Ohios 529 Plan provides tax advantages to help families reach their college savings goals. Any Ohio taxpayer including parents, grandparents, family members, and friends can help open the door to higher education for a loved one by contributing to a plan. Any Ohio resident who contributes directly to a childs Ohio 529 account can claim the State of Ohio tax deduction, even if they are not the account owner. Account owners pay no taxes on account earnings, and withdrawals used for qualified higher education expenses are exempt from both federal and state taxes.
The end of the year is the perfect moment in time to revisit and review your savings goals for higher education, and ensure that youre maximizing all the 529 tax benefits to grow your account from tax-free earnings, to tax free-withdrawals, to state income tax deductions, said Tim Gorrell, executive director of the Ohio Tuition Trust Authority.
Ohios CollegeAdvantage Direct 529 Savings Plan is recognized nationally as one of the nations best 529 plans.
Plan State Income Tax Benefits
Many states offer incentives to encourage residents to save for college. Studies show that children who have even a small amount saved for college are more likely to attend and graduate. Having a highly educated workforce can help drive economic growth and development in the state.
More than two-thirds of the states offer an income tax benefit for college savings. The majority of states require taxpayers to contribute to their home states 529 plan to qualify for an income tax benefit, but seven states offer a tax incentive for contributions to any 529 plan:
The most common benefit offered is a state income tax deduction for 529 plan contributions. However, Indiana, Utah and Vermont offer a state income tax credit for 529 plan contributions and Minnesota offers a state income tax deduction or tax credit, depending on the taxpayers adjusted gross income.
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Save Your Green For Higher Education Costs
Why save your green in Ohios 529 Plan? Its far cheaper to save for their higher education now and earn tax-free interest in a 529 account than to pay off student loans that grows with accumulated interest later. With all the benefits offered in a 529, you green can grow to reach your college savings goals.
Ready to start with Ohios 529 Plan? Visit CollegeAdvantage online to save for your child future higher education. Someday your child is going to college. Someday starts today with CollegeAdvantage.com.
Posted on March 17, 2020
Ohio Tuition Trust Authority
Collegeadvantage Direct 529 Plan
Sold directly through the state, this plan is managed and distributed by the Ohio Tuition Trust Authority. The plan offers two options that automatically change the balance of investments among asset classes as the beneficiary gets closer to their high school graduation: a college-enrollment-date option and an age-based option that enables investors to choose from aggressive, moderate, or conservative risk strategies.
The plan also lets you choose among five static, index-based portfolios that vary by risk and 15 individual investment options. The latter focuses on different investment categories such as international equities, balanced funds, and capital preservation through a money market fund. Most of these individual options are funds managed by The Vanguard Group or Dimensional Fund Advisors. Two of them are banking options whose contributions and interest income are insured by the Federal Deposit Insurance Corp. up to $250,000: a Fifth Third Bank savings account or certificate of deposit.
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Plans And Financial Aid
Saving for your childs future higher education in a 529 will not hurt your chances for federal financial aid.
A 529 college savings plan has a minimal effect on need-based federal financial aid. At most, a parent-owned 529 plan will only be counted up to 5.64% of its total when you fill out FAFSA. For example, if you have saved $10,000 in a 529 plan, only up to $564 of it will be counted as an asset on the form. And wouldnt you rather have the $10,000 in college savings and potentially lose $564 in financial aid, while receiving all the remaining aid for which your child is eligible?
Honors For Ohios 529 Plan
If you are ready to start saving for your childrens future higher education 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.
Savingforcollege.com also ranks the nations 529 programs based on how well they serve both in-state and out-of-state residents with its 5-Cap Rating. Ohios Direct 529 Plan has earned the top 5-Cap Rating for both in-state and out-of-state residents as of March 31, 2021. This makes Ohios 529 Plan one of only six Direct 529 plans nationwide to achieve this honor for both in-state and out-of-state residents.
Ohios 529 Plan also tops the long-term performance rankings from Savingforcollege.com. As of March 31, 2021, CollegeAdvantage Direct 529 Plan ranks first in the nation for the best investment performance in the ten-year category. Ohios Direct Plan also ranks second in the nation in the three-year category, sixth in the nation in the five-year category.
Visit Ohios 529 Plan online to start saving today for your childs future education. An investment in a 529 plan is an investment in your child where every dollar saved today is a dollar that doesnt have to be borrowed later. A 529 account can be used for whatever comes after high school. Learn, plan and start with Ohios 529 Plan today at CollegeAdvantage.com.
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Iowa Taxpayers Can Use College Savings Iowa 529 Assets To Pay K
Qualified withdrawals from your account can be used to pay for tuition, room and board , books, supplies, fees and equipment required for enrollment or attendance at any eligible educational institution in the United States or abroad, as well as computers or certain peripheral equipment, certain computer software or internet access and related services that are to be used primarily by the Beneficiary during any of the years the Beneficiary is enrolled at an eligible educational institution.
Additionally, qualified withdrawals include fees, books, supplies and equipment required for participation in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act, and amounts paid as principal or interest on any qualified education loan of the beneficiary or a sibling of the beneficiary provided that the total amount that may be used from all accounts for repayment of loans of a beneficiary may not exceed $10,000. You should consult your tax advisor for more information.
Plans Work With Scholarships
When you save in a 529 plan, you can be assured that your college savings account is made to work with scholarships.
As most scholarships dont provide a full ride, your 529 plan can help pay for the rest of the costs. Tuition, room and board, mandatory fees, books, supplies, computers and related equipment and services are 529-qualified higher education expenses.
If the scholarship does cover all of your students higher education expenses, then you can also hold onto the 529 account to use if your child decides to pursue dental, law, medical, or other graduate school options. You also have the option to transfer the 529, without any tax penalty, to any other beneficiary who is related to your child, including siblings, stepsiblings, parents, stepparents, cousins, grandparents, nieces and nephews, and yourself. In addition, there are no time limits on when you have to use the funds saved in a CollegeAdvantage Direct 529 plan so you can keep saving in it for your grandchildrens future college costs.
Where Can You Use Ohio 529 Plan
529 plans can be used for whatever comes after high school, including federally accredited trade and specialty schools, apprenticeships, community colleges, certificate programs, four-year universities and colleges, graduate school, law school, and medical school. So, if your child chooses to further their education by attending a trade school, apprenticeship, or certificate program, you can also use your 529 account to pay for qualified costs there.
And Ohio 529 Plan can be used nationwide its not just for local schools! If the higher education institute has a federal school code because they accept federal financial aid, then you can use your 529 college savings account there.
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Important Information About This Investment
The Vanguard Total International Stock Index Option invests 100% of its assets in Vanguard Total International Stock Index Fund, which employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex U.S. Index, a float adjusted market-capitalization-weighted index designed to measure equity market performance of companies located in developed and emerging markets, excluding the United States. The index includes approximately 5,300 stocks of companies located in over 46 countries. The fund invests all, or substantially all, of its assets in the common stocks included in its target index.
Growth of $1,000as of 06/30/2022
Compound Interest Is A Superpower For Growth
There are other factors to help build up your 529 plan as well as the tax benefits. Compound interest is a major source of growth for any savings program. For a 529 college savings plan, the compound interest is accrued not just on the original contribution but on every contribution. Compound interest is also added to the 529 investment options earnings and the already accumulated interest.
If you would like to see the power of compound interest, use this calculator from U.S. Securities and Exchange Commission to input your information to see how compound interest can build up your college savings account.
The effect of compounding is especially powerful over a long time period as the amount of earned interest can grow larger and larger. This is an excellent reason to start as 529 fund as early as possible for your child.
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