By Tim Gorrell, Executive Director, Ohio Tuition Trust Authority

October 30, 2018


With Halloween coming up, it’s a good time to face your fears — your college financing fears. Here’s the truth about 529 college savings plans to conquer your fears.  

  1. What if I’m starting too late?

It’s never too late to save for higher education costs. Unless your student is in the last semester of their terminal degree, there’s still time to save for the future, whether the future is next semester or next decade. Every dollar you save now is one that your child won’t have to borrow. Start your savings with a tax-advantaged 529 plan in which earnings grow tax free; withdrawals are tax free when used for qualified higher education expenses; and many states offer state income tax deductions or credits for contributions to state-run 529 plans.

  1. What if my child doesn’t go to college?

You always have access to the funds saved in a 529 account, and you have options. 529 plans have no time constraints, so you can wait to see if your child rethinks their decision. You can transfer the beneficiary on your account to many family members. There is also the option of withdrawing all the 529 funds. Keep in mind, however, that it will be a non-qualified withdrawal; therefore, a 10 percent federal tax penalty will be imposed — as with an early 401(k) or traditional IRA withdrawal — but only on the earnings portion of the withdrawal. You would also be liable for any federal, state, and local income taxes on the earnings.

  1. What if I save in my state’s 529 plan but my child wants to go to an out-of-state school?

Your 529 college savings plan can be used nationwide at any federally accredited educational institutions — whether for an associate, bachelor’s, graduate, professional, or vocational degree. If the school has a Federal School Code on the Free Application for Federal Student Aid (FAFSA), then you can make tax-free withdrawals to cover qualified expenses there.

  1. What if my child gets a scholarship?

529 plans are made to work with scholarships. Whatever qualified costs the scholarship doesn’t cover, the 529 can pay for the rest. You can also withdraw the exact amount of the scholarship from the 529 account. Keep in mind, however, that the earnings on that withdrawal will be subject to federal and state taxes, but not the 10 percent federal tax penalty.

  1. What if the 529 affects my financial aid?

If you own a 529 account for your child, the funds will only be included up to the maximum amount of 5.64 percent in figuring out the Expected Family Contribution (EFC) on your FAFSA. Put another way, if you have $10,000 in a 529 plan account, only $564 will count against your eligibility for federal financial aid.

  1. What if I don’t know how to get started?

The College Savings Plan Network wants to help you! Visit and use our resources to learn, explore, and select a 529 plan based on which one best fits your family’s needs. You can also compare your state’s 529 program to others. If you’re trying to figure to how much your child’s higher education could be, use the College Cost Calculator for an estimate.

Take steps today to conquer your college financing fear. There’s only one real fear with 529 plans — the fear of not starting one.


About the author:

Tim Gorrell is the executive director of Ohio Tuition Trust Authority. For more than 25 years, Ohio Tuition Trust Authority has sponsored and administered Ohio’s 529 Plan, CollegeAdvantage. Ohio’s 529 Plan oversees more than 639,000 accounts and over $11.6 billion in assets. Visit or call 1-800-AFFORD-IT (233-6734) for more information.