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Tax Insights: 529 Plan Use Expanded Under Tax Reform
A 529 plan has historically been used to cover various qualified college expenses, including tuition, enrollment fees, books, supplies, housing, online educational materials, tutoring or classes outside of the home, and educational therapies for students with disabilities. Under the new Tax Cuts and Jobs Act, 529 plan distributions have been expanded for use beyond college expenses.
The new federal law changed the definition of “qualified higher education expenses” to include enrollment fees for elementary and high school public, private, or religious schools. What this means is that you can now pay for your child’s tuition fees using funds distributed from a 529 plan that were previously only allowed to be used for college expenses.
The maximum amount allowed to be distributed federally tax-free from a 529 plan is $10,000 per beneficiary, per year for K-12 tuition expenses; this limit does not apply for college expenses. Not all states have followed the federal tax-free treatment for the K-12 tuition expenses, which may result in state taxation of the amount distributed. While there is no annual contribution limit that can be made to a 529 plan, there are maximum aggregate limits imposed which vary by state. We have listed below Ohio 529 plan options and contribution requirements:
| OHIO PLAN | MAXIMUM CONTRIBUTIONS | MINIMUM CONTRIBUTIONS | ||
| BlackRock CollegAdvantage Advisor 529 Savings Plan | Accepts contributions until all 529 account balances in Ohio’s 529 plans for the same beneficiary reach $462,000.
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The minimum initial contribution is $25 per investment option and the minimum subsequent contribution is $25. | ||
| Ohio CollegeAdvantage Direct 529 Savings Plan | Accepts contributions until all 529 account balances in Ohio’s 529 plans for the same beneficiary reach $462,000.
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$25 ($500 for the Fifth Third CD option). | ||
| STABLE Account | The plan’s annual contribution limit is currently $15,000 per year per beneficiary from all sources. If employed, up to $27,060 per year. There is also a lifetime account limit of $462,000, at which point no new contributions may be made.
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The minimum initial contribution amount is $50.00 per STABLE Account. The minimum subsequent contribution amount is $1.00 per STABLE Account. | ||
| CollegeAdvantage Guaranteed 529 Savings Plan | Contributions suspended until further action taken by OTTA. | Currently not accepting contributions. |
See additional 529 state plans.
The total amount contributed to any 529 plan beneficiary, in whole, should not exceed the amount needed for qualified education expenses. Any amount withdrawn for non-related tuition expenses are subject to standard tax rates plus penalty fees. If you are planning on using your child’s 529 plan to pay for K-12 tuition expenses, contact the 529 plan provider to verify that the distribution is a qualifying distribution before you take out the cash. In addition to the expanded use, contributions to an Ohio 529 plan are now deductible up to $4,000 per child, which is double the $2,000 per child original amount. Contributions exceeding $4,000 can be carried over to future years. Any gifts in excess of $15,000 per person will need to be reported on U.S. Gift Tax Form 709, including gifts made to a 529 plan for children or grandchildren.
There are many resources available with information on saving for college which provides information on plans available within your state. We can help you review your current 529 plan or other tax-efficient, low-cost offerings.
