HEAD OF SCHOOL MESSAGE: ADVANTAGES OF 529 PLANS
Recent Ohio legislation provides A tax benefit for WC tuition payment
By Troy McIntosh, Head of School
Most people think of 529 Savings Plans as a tax-advantaged tool for saving for college. Ohio, however, has recently passed legislation that will give a rather simple tax benefit to families as they pay for WC tuition. WC families may now open an Ohio CollegeAdvantage 529 Plan – or use an existing Ohio CollegeAdvantage Plan – and receive an Ohio tax deduction up to $4000 per year per child on funds deposited into the account that are used to pay WC tuition. This could represent a savings of several hundred dollars per year for school families. Here is how it works:
- Use the link above to learn how to set up an Ohio CollegeAdvantage 529 plan. Be aware that, in order to receive the state tax benefit, the 529 plan you set up must be one of the Ohio CollegeAdvantage Plans. A 529 plan that is not part of Ohio CollegeAdvantage does not qualify for the state tax deduction.
- Any money placed into an Ohio CollegeAdvantage plan receives the same federal tax benefits on the growth that any other 529 plan receives. Since the federal tax benefit is on the growth, it is advantageous to leave funds in the account over the long term.
- However, the uniqueness of the Ohio CollegeAdvantage Plan is that a family gains the state tax deduction as soon as the money is deposited in the account. A family could deposit an upcoming WC tuition payment on Monday, withdraw the money on Tuesday, and claim the tax deduction for the entire amount, up to $4000 per child per year.
- What is a 529 account?
It is an investment account set up to fund future educational costs for a single beneficiary. There are certain federal and (possibly) state tax advantages to setting up a 529 account.
- Can I use my 529 account to pay K-12 tuition at WC?
Yes. Prior to 2018, 529 accounts could only be used for post-secondary education. However, beginning in 2018, they can now be used to pay for tuition at a private elementary or secondary school (i.e., K-12).
- Is there an annual limit on K-12 costs that can be paid with my 529 account?
Yes. The student could be a beneficiary for multiple 529 accounts (Mom, Dad, Grandma, Grandpa, Aunt Sally, etc.), but the maximum amount allowed for K-12 tuition per year from all accounts is $10,000.
- How do I use 529 funds to pay for tuition that exceeds $10,000 per year?
If tuition exceeds $10,000 per year, you will not be able to fund the entire tuition in one calendar year. You could pay half in July and half in January of next year. This would keep you under the limit in the first year, but you may bump up against the limit in the following year.
I am not a financial advisor so you may wish to discuss this with one prior to acting. However, this is a favorable piece of legislation from which many school families may benefit.