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By Julie Schuler
May 25, 2023
With a rising high school senior, my family is in the home stretch of college saving and we’re now gearing up for college spending. As excited as I am about them applying to colleges soon, when I imagine paying tuition bills, I get all sweaty and nervous! It helps that when they were young we opened a 529 college savings plan to help cover the costs of their education.
A 529 is a state-sponsored investment plan where the money you save is earmarked for education expenses. According to Trisha Good, Interim Executive Director of the Ohio Tuition Trust Authority, which manages Ohio’s 529 Plan, CollegeAdvantage, 529 plans have undergone significant changes since the time of our initial investment, and it turns out we can use the money we invested to pay for a lot more than we thought we could. Here’s what Good told me:
#1: Your 529 plan savings grow tax-free.
I already knew investing in a state-sponsored 529 savings offers significant tax advantages, but I thought that was limited to how much my contributions reduce state taxable income. (If you live in Ohio, for example, like I do, you can reduce your taxable income by $4000 per beneficiary per year.) Here’s the bonus I didn’t know about: Tax advantages continue with distributions. When it’s time to make a withdrawal, both contributions and earnings are tax free at federal and state levels as long as you use those funds for college or eligible education expenses.
#2: 529 savings aren’t just for 4-year colleges.
Did you know 529 savings aren’t limited to paying tuition at traditional four-year colleges? I didn’t. I also didn’t know you can use that money to pay for trade schools, certificate programs, apprenticeships, and even the tools/books/resources needed to complete those programs. There’s even more good news: New federal laws, including one enacted in 2022 give you the ability to:
- Pay K-12 tuition, up to $10,000 per student, per year. That includes tuition at public, private or religious elementary schools.
- Beginning January 1, 2024, roll over the funds into a Roth IRA for your child. Keep in mind that there are requirements and contribution limits to consider, but it’s a smart move to boost savings and invest in your teen’s financial future. (LINK TO LAST ARTICLE)
- Pay down student loan debt. You can use 529 accounts to make payments towards the principal and interest of qualified education loans for either the 529 beneficiary or the beneficiary’s siblings. There’s a lifetime limit of $10,000 per beneficiary for this provision.
Good says that the flexibility and versatility of 529s often surprise people and that “even if you can only save for a few years, there are tremendous benefits and flexibility built into the program.”
#3: Grandparents and family members can set up 529 accounts for your kids — and it’s easy to do.
While I knew it was possible for extended family members to set up a 529 account for your kids, I assumed it would be too much paperwork or too hard to manage, and I didn’t understand the logistics. As it turns out, according to Good, setting up a 529 account for a family member is easy.
“Family” includes anyone related to your child by blood, marriage or adoption. All your family members need is your child’s social security number, and it takes only minutes to create an online account with recurring contributions. Or, if you have an account like CollegeAdvantage, you can share a code with your family members and they can easily make a one-time gift for a special occasion, like graduation.
“We set up the ‘529 Gift Central’ button on our website to make gifts like these easy,” says Good. “Parents can share a code with loved ones and that’s all they need to make a contribution.”
How about that? No hassle, no paperwork. It’s actually super simple for loved ones to make one-time gifts or regular contributions to your child’s education fund.
#4: There’s an app for that!
According to Good, with so many people using banking apps, it made sense for CollegeAdvantage to launch their ReadySave529 app a few years ago, and I have to agree. I’ve been going online to check our 529 account balance more regularly now that college is just around the corner, and using an app is an easy way to stay on top of it.
529 apps offer a variety of tools. Some offer features like checking your account balance, making payments, and even helping with tax paperwork.
#5: May 29 is 529 Day.
You may know that pie day is March 14th, but have you marked your calendar for May 29th? It’s 529 Day, a day dedicated to raising awareness about the importance of saving for college.
With many plans across the country offering special perks, promotions, and fun events for people to learn about the benefits of 529 accounts, it’s an excellent opportunity to discover even more ways to make the most of your hard-earned savings. For example, CollegeAdvantage is running several promotions at professional sporting events throughout Ohio, with prizes that can jumpstart or enhance a 529 account.
Take advantage of those perks! Every little bit counts when it comes to saving for college. Good says, “Even small regular deposits — as little as $25 — can grow significantly over time.”
After speaking with Good about the flexibility built into 529 accounts, the expanded list of qualified educational expenses, and the tax savings these plans offer, I feel even better about investing in a 529 savings account for my child. A 529 College Savings Plan gives my kid a strong financial foundation for their education, plus it saves our family quite a lot of money. It’s a smart investment.
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Courtesy : https://yourteenmag.com/teens-college/529-college-savings-account