Celebrating 529s On 529 Day

By Trisha Good, Executive Director, Ohio Tuition Trust Authority

May 29, 2024

I am a firm believer in the power of saving in a 529 plan as my family has personally experienced its benefits. My husband and I saved in 529 plans for our two children’s education and career training after high school. With the help of our extended family, they both graduated from their respective colleges DEBT FREE! And now, I am saving for my two wonderful grandchildren for their future education.

As we celebrate May 29 as 529 Day, I want to share the many reasons why my husband and I chose to save in a 529 account.

529 tax benefits

All earnings in a 529 plan are tax-free, so all investment growth is yours to use for higher education expenses. Compound interest—the interest earned on contributions, earnings, and interest already accumulated in the 529 account—is included in your 529’s tax-free earnings.

529 plan withdrawals for qualified higher education expenses are also tax-free at schools that accept federal financial aid. These costs include tuition; room and board when the beneficiary is enrolled at least half-time; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment related to enrollment and classes; and certain expenses for a special-needs student. Room and board costs can also include rent for off-campus residencies—apartments, rental homes, and Greek fraternities and sororities’ houses—and groceries (non-taxable items only), provided these costs are equal or less than the school’s room and board allowances. 529 plans can also pay for fees, textbooks, supplies, and equipment, including required trade tools for registered apprenticeships.

Many states also offer tax deductions or tax contributions for contributions made to the state’s 529 programs. If you want to see your home state’s benefits and tax information, CSPN has a great tool to review your state’s program and compare it to others.

Use at many kinds of schools!

529 plans can be used for your child’s education and career training after high school – whether for a two-year, four-year, graduate 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. If the school has a Federal School Code with the Federal Student Aid, an office of the U.S. Department of Education, then you can pay for qualified costs there with a tax-free 529 withdrawal.

Others can help save

As the adage says, “It takes a village to raise a child.” When loved ones asked us for gift ideas for our children, we asked for contributions to their 529 accounts for their future. Most contributions to a 529 plan can start as low as $10-$25. Also, many 529 programs offer gifting platforms that allow trusted

family members and friends to make online gift contributions directly to your children’s 529 accounts without needing the actual account number.

529 flexibility

Not only can you use your 529 account for post-secondary education expenses, but you can also use it for K-12 tuition at a public, private, or parochial elementary or secondary school. This means your education saving account can cover many costs for elementary, secondary, and post-secondary education. The 529 withdrawal limit is $10,000 per year to pay for K-12 tuition. Consult your qualified tax advisor for specific information.

Families can also pay for a student loan that qualifies for the federal student loan income tax deduction with a 529 distribution. There is a $10,000 lifetime limit for the beneficiary of a 529 account. Another $10,000 can repay the qualified student loans of the beneficiary’s siblings.

At the start of 2024, a new tax-free qualified distribution was added to 529 accounts. Now, any remaining funds in a 529 account can be rolled over into a Roth IRA for the same beneficiary as the 529. There are prerequisites that must be met to use this new qualified distribution. Consult your qualified tax advisor for specific information.

There’s a lot to celebrate about 529 plans on 529 Day. After all, any investment in a 529 plan is an investment in your child’s future. To learn more about 529 higher education saving plans, please visit CSPN.

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