By: Tim Gorrell, Executive Director, Ohio Tuition Trust Authority
December 27, 2016
As you’re wrapping up the gifts and your 2016 to-do list, review your 529 account and check that you’re receiving all the tax benefits with each gift of college you contributed to the 529 account.
It’s the time of year when you’re not only tying bows on presents but also to tying up your year-end to-do list. As you work to complete all the items before the holidays, take time to review your 529 college savings plan to see if there are any additions or adjustments you would like to make.
First, take full advantage of all the tax benefits offered with 529 accounts, which may include deductions from your state taxable income based on your 529 contributions. There are over 30 states, as well as Washington D.C., that offer state tax credits or deductions for college savings contributions made to 529 plans. If possible, maximize this tax advantage by making additional account contributions to reach the cap. Check with your 529 plan administrator to see when these contributions must be added to be included in this year’s total.
Additionally, per federal 529 laws, individuals can invest up to $14,000 ($28,000 for married couples) per beneficiary without incurring any federal gift-tax consequences. You can even contribute up to $70,000 per beneficiary in a single year ($140,000 for married couples) and take advantage of five years’ worth of tax-free gifts at one time. Keep in mind that this total comprises all financial gifts, including but not limited to cash and gifts of property. For more information, consult your tax adviser or estate-planning attorney.
If you made withdrawals from your 529 account in 2016 to cover qualified higher education expenses, double check that you have paid that cost in this year. While not specifically stated in IRS literature, it is best that the 529 plan withdrawal and the payment of the qualified higher education match up in the same tax year.
Don’t forget that you can make two exchanges per year to the investment options within your 529 account. Before the year-end, review your college savings plan and consult with your financial planner to see if there are any 529 exchanges to consider implementing.
And if you haven’t done it yet, consider starting a 529 plan for your children today. It’s far better to save money and earn interest in an account now than pay off student loans with accumulated interest later. With all the tax benefits offered with a 529 plan, your account can grow to reach your college savings goal.
So as you’re wrapping up the gifts and your 2016 to-do list, check your 529 account and make sure that you’re receiving all the tax benefits with each gift of college you contributed to it.
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 CollegeAdvantage, Ohio’s 529 College Savings Program. CollegeAdvantage now oversees more than 635,000 accounts and over $9.77 billion in assets. Visit CollegeAdvantage.com or call 1-800-AFFORD-IT (233-6734) to learn more.