Education Planning 102

Piggy Bank with savings formula

Want to take your education planning, and tax deductions, to the next level?  Keep reading! 

To add a layer of sophistication to education planning, you must recognize that Ohio allows a tax deduction of $4,000 per beneficiary and allows you to move accounts between beneficiaries within the same family. 

Let’s look at an example.  If a married couple (H & W) has two children (B & G) in private school, they could potentially pick up $16,000 in state tax deductions.  They would open an account with B as beneficiary, G as beneficiary, H as beneficiary, and W as beneficiary contributing $4,000 to each account. Then H and W would move their accounts to B and G to be used for tuition. 

$4,000 tax deduction * 4 beneficiaries = $16,000 Ohio tax deduction!

If you have questions, please do not hesitate to reach out!

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Save Taxes Paying For Private School

EducationPrivate school education can have many upsides, but saving for college while paying private school tuitions can be daunting.  I have found very few people are aware of a recent tax change that can help reduce your taxes! 

The recent tax change has now allowed section 529 education savings plans (if you don’t know what this is, I address it here) to be used for primary education expenses up to $10,000 per year.   This can be a big tax win for Ohio parents with children in private school. 

Ohio allows for a $4,000 state tax deduction per beneficiary (up from $2,000 last year) for funds contributed to an Ohio College Advantage plan.  While the accounts were originally established for college savings, now they can be used to pay for private education. 

So instead of making your next private school tuition payment from your checking account, simply contribute to your child’s College Advantage account and then request reimbursement for the tuition you paid.  Simple as that and you have a $4,000 state tax deduction!

Feel free to reach out to me if you have questions!

529 College Savings FAQs

529 College Savings Plan Theme With Textbooks And Piggy Bank

Many times when I talk about 529 college savings plans with friends and clients, I am surprised by the lack of basic understanding of how the plans work.  Below is a list of the most common questions I get asked about college savings.

If you know someone thinking about college planning, have them reach out to me!

Q: What is a section 529 education plan? 

A: Named after a section of IRS code, it is just a fancy name for an education savings account.  These plans were originally established for families to save money for college in a tax-advantaged way.  The money you put into the account grows over the years and you can pull the money out for college without having to pay taxes on the growth. 

Q: Do I make too much money to contribute to a 529 account? 

A:  No.  Unlike many retirement accounts, there are no income limits, age restrictions, or annual contribution limits.  There are maximum contribution limits that vary by plan, but are at least $235,000! 

Q: Can I use the funds in my Ohio 529 to pay for a school out of state? 

A: Absolutely!  Just because you put money into the Ohio plan doesn’t mean that your student must attend college in Ohio.  It can be used for any qualified institution across the country. 

Q:  What if my student doesn’t go to college? 

A:  The best option is to transfer the money in the account to another family member for education expenses.  If you decide to pull the money out for non-education expenses, then you could be subject to investment income taxes and a 10% tax penalty on the earnings of the account (not the full withdrawal). 

Q: What happens if my student gets a scholarship to college? 

A:  If your student receives a scholarship and doesn’t need the funds in the 529 account, then you are eligible to withdrawal the money and avoid the above mentioned 10% penalty.  You will still be subject to investment income taxes, but this is no different than an ordinary investment account. 

Q:  Can my family add contributions? 

A: Anyone can make a contribution to your child’s 529 account.  However, the person making the contribution is the one who will take the potential state tax deduction.  This can be a good excuse to tell grandparents to save for college instead of buying that toy that will be gone next year. 

Q:  Will my 529 account impact my financial aid eligibility? 

A:  Depends.  If the account is owned by the custodial parent or the student, then it is treated as a favorable asset for financial aid purposes.  If the account is owned by anyone else (i.e. grandma) then it doesn’t count against financial aid.  However, once grandma starts taking withdrawals from the account to help you pay for college it can have a large negative impact. 

Q:  What does it cost? 

A:  Ohio has one of the most affordable 529 college savings programs in the country.  The direct plan offers many mutual fund options (many from Vanguard) at a low cost.  However, if you go into a bank or work with a commissioned investment advisor, you are going to pay substantially more. 

Q:  How do I start an Ohio College Advantage 529 account? 

A:  As mentioned above, you can do this on your own.  Go to www.collegeadvantage.com and click on “Open an Account” in the upper right-hand corner.  You can start an account with as little as $25! 

2018 Ohio Tax Changes

Without much press, Governor Kasich signed the budget bill into law with a couple of changes that impact individuals in Ohio.

  • Small Business Owners will continue to receive favorable tax treatment with 100% of business income deductible up to $250k per year.  Above that level, it is taxed at a flat 3%.
  • Parents with Kids in College will receive a nice perk when the Ohio CollegeAdvantage 529 deduction raises from $2,000/yr to $4,000/yr.
  • All Taxpayers will benefit from the inflation adjustments to the tax brackets and personal exemptions for 2017 and 2018.  Some may benefit from the elimination of the bottom 2 tax brackets (now 7 brackets instead of 9).

There were also changes to the sales and use taxes, municipal income tax and Commercial Activity Tax (CAT Tax).  To read a summary of all the changes from the Ohio Society of CPA’s click HERE.

To discuss how to take advantage of the Small Bussiness Owners credit or the new higher limits on college savings contact me!