March 27, 2017
By Tim Gorrell, Executive Director, Ohio Tuition Trust Authority
March 27, 2017
April has been designated Financial Literacy Month to focus on increasing the public’s comprehension of basic monetary concepts. Many banking institutions and credit union offer financial wellness seminars. Additionally, university extension offices may provide financial literacy classes. By doing a little research, people can find many free resources available to improve their understanding of how to best use, as well as save, their money.
For the 529 industry, progress has been made in educating the public about the abundant advantages of these college savings plans and it must continue.
While student loan debt nationally has risen to $1.3 trillion, there has also been a marked increase over the past ten years in saving for college which indicates a measure of thoughtful financial literacy. According to the Sallie Mae report, “How America Saves For College 2016,” 57 percent of parents are now saving for their children’s future college costs, up 9 percent from 2015. Additionally, the average savings amount now stands at $16,380, an increase from $10,040 in 2015. The report also found that families who use 529 college savings plans have saved more than other college savers. A takeaway from the report is people are learning about the added tax benefits and values of 529 college savings plans and are using them.
There is still more for the public to understand about 529 plans, including one that many people don’t recognize – that 529 accounts aren’t just for children. If an adult would like to head back to college to finish their degree, hone their professional skills, or start a new career path, then they should consider opening a 529 college savings account for their own college expenses and tax benefits.
Traditionally, 529s have been used to fund children’s future college costs; however, there are no age restrictions on who can use these college savings accounts and no time limits on when the account must be used. Furthermore, 529 plans were created to be used at any federally accredited educational institution, which includes two-year, four-year, graduate, professional or post-secondary degree programs. For working adults who want to continue their college education to advance their career, they should check with their human resource department to see if tuition reimbursement is a part of the employee benefits. This benefit combined with 529 savings could significantly reduce higher education costs.
All the tax advantages associated with a child’s 529 account would also apply to an adult’s account. The 529 college savings plan will grow with tax-free earnings on contributions. Withdrawals from 529 plans are also tax free, provided the funds are used for qualified higher education expenses, which includes many large costs like tuition, mandatory fees, and computers. Some states also allow deductions to state taxable income based on contributions made to 529 plans.
An additional benefit to 529 plans: If there is money left over in a child’s plan, the account owner can transfer the remaining funds to the parent’s account. No tax penalties will be accessed with the transfer as long as the new beneficiary is a family member, which the parent is. By rolling over these 529 plan assets, the account owner can use the money already set aside for college expenses for their own continuing education.
People want to understand their finances and make informed fiscal decisions. As they learn more about the multiple benefits of 529 accounts, the use of these college savings plans will continue to grow.
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 $9.92 billion in assets. Visit CollegeAdvantage.com or call 1-800-AFFORD-IT (233-6734) to learn more.