529 Plans: A Guide to Education Savings

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As the cost of education continues to rise

Many families are looking for effective ways to save for their children’s future. One popular option is the 529 plan—a tax-advantaged savings vehicle designed specifically for education expenses. In this guide, we’ll explore how 529 plans work, strategies to maximize their benefits, and how local families across Ohio can make the most of them.

What is a 529 Plan?

A 529 plan is a state-sponsored investment account that allows families to save for education expenses with tax advantages. Named after Section 529 of the Internal Revenue Code, it's designed to encourage saving for future education costs. An account owner—typically a parent or grandparent—opens the account on behalf of a beneficiary (the future student).

Key Features of 529 Plans

  • Tax Advantages: Earnings grow tax-free, and withdrawals for qualified education expenses are tax-free at the federal level. Many states, including Ohio, offer additional tax benefits.

  • Flexibility: Covers tuition, fees, books, supplies, room/board, and—since 2018—up to $10,000 annually for K–12 tuition.

  • Control: The account owner retains control, including the ability to change the beneficiary.

Contribution Rules

  • No Income Restrictions: Anyone can contribute, regardless of income.

  • Gift Tax Considerations: In 2025, contributions up to $19,000 per beneficiary are exempt from gift tax reporting.

  • Superfunding Option: Front-load contributions—up to five years’ worth (e.g., $95,000 single, $190,000 married) with a gift tax election—without penalty.

Distribution Rules

  • Qualified Use: Withdrawals are tax- and penalty-free when used for tuition, fees, books, room/board, computer equipment/internet, K–12 tuition, registered apprenticeship program costs, or up to $10,000 in student loan repayment.

  • Non‑Qualified Use: Earnings are subject to income tax and a 10% penalty, with exceptions such as death, disability, scholarships, or military academy attendance.

Funding Strategies

  • Front‑Loading: Use lump sums—bonuses, inheritances, or stock option proceeds—to boost growth in tax-advantaged accounts.

  • Automatic Contributions: Regular bank or payroll transfers make saving habitual. Even modest amounts can accumulate significantly.

  • Timing Matters: Starting early gives your savings more time to compound, but it's never too late. Even funding in high school years can help cover later tuition, books, or qualify for state tax deductions.

Investment Options

  • Age‑Based Portfolios: Automatically adjust allocation over time.

  • Static Portfolios: Maintain a steady mix.

  • Individual Funds: Build a custom allocation using mutual funds.

Additional Flexibility

  • Who Can Contribute: Parents, grandparents, relatives, and friends can all add to the account—a great way for family to collaborate.

  • Changing Beneficiaries: Unused funds can be reassigned to another family member without penalty.

  • Roth IRA Conversion Option: Starting in 2024, unused 529 funds can be converted to a Roth IRA for the beneficiary:

    • Up to $35,000 lifetime

    • Subject to annual IRA limits (e.g., $7,000 for 2024/2025)

    • Account must be open for at least 15 years

    • Funds converted must have remained in the account for at least five years

This option gives families a smart way to repurpose leftover education funds into retirement savings and reduces the risk of overfunding.

State-Specific Notes: Ohio Tax Deduction

Ohio residents benefit from a state tax deduction of up to $4,000 per beneficiary, per year, with unlimited carryforward—even if you contribute more than that amount. Contributions to any 529 plan (Ohio's or another state’s) are eligible for the deduction. Excess contributions carry forward until fully deducted.

How Vaultis Can Help

At Vaultis, we help families integrate 529 plans into their broader financial strategy—from deciding how much to fund and when, to coordinating investment choices and tax considerations. We offer independent guidance with transparent fees and can factor education funding into the bigger picture.

Putting It All Together

529 plans offer families a flexible, tax-efficient way to save for education. By combining smart funding strategies like front‑loading and auto‑contributions, leveraging state tax benefits, and working with a trusted advisor, you can optimize savings for your child’s future.

Frequently Asked Questions

What expenses qualify under a 529 plan?

Qualified expenses include tuition, fees, books, supplies, room and board (for half-time students), K–12 tuition (up to $10,000/year), computers/internet, registered apprenticeship programs, and up to $10,000 in student loan repayment.

Can I use 529 plan funds to pay for private school tuition?

Yes. You can use up to $10,000 per year, per student, for K–12 tuition at public, private, or religious elementary and secondary schools.

What happens if my child doesn’t go to college?

You can change the beneficiary to another qualifying family member, use the funds for apprenticeship programs or K–12 tuition, or convert up to $35,000 to a Roth IRA (subject to eligibility). Non-qualified withdrawals are subject to taxes and a 10% penalty on earnings.

What happens if I take a 529 distribution for non-education expenses?

If you use 529 funds for something other than qualified education expenses, the earnings portion of the withdrawal is subject to ordinary income tax and a 10% penalty. The original contributions (your basis) are always withdrawn tax- and penalty-free. There are exceptions to the penalty for cases like death, disability, scholarships, or attendance at a U.S. military academy.

Do 529 plans impact financial aid?

Yes, but usually not significantly. For parent-owned 529 plans, assets are considered a parental asset on the FAFSA and assessed at a maximum of 5.64%—less than student assets. Qualified withdrawals are not treated as income for FAFSA purposes.

Should I open one 529 account or separate accounts for each child?

Separate accounts can help track balances and investment strategy by child. However, you can also use one account and change the beneficiary later if flexibility is more important.

How does superfunding impact estate planning?

Front-loading gifts accelerates wealth transfer without affecting gift tax thresholds and frees up estate value. Vaultis coordinates these strategies alongside long-term financial goals.

How often should I revisit my 529 plan?

At least annually—or after major life changes (new child, scholarship, inheritance)—to review asset allocations, gifting levels, tax deductions, and Roth IRA rollover opportunities. Vaultis clients receive regular reviews to stay aligned with their goals.

Disclosure: The information provided in this article is for general informational purposes only and should not be considered as personalized financial advice. This content does not take into account your individual circumstances, objectives, or needs. While we strive to provide accurate and up-to-date information, tax laws and regulations are subject to change, and specific details of 529 plans may vary by state. Before making any financial decisions or implementing strategies discussed in this article, we strongly recommend consulting with a qualified financial advisor, tax professional, or legal counsel. They can provide personalized advice based on your specific situation and help ensure compliance with current laws and regulations. The author and publisher of this article are not responsible for any actions taken based on the information provided herein. Investment involves risk, and past performance is not indicative of future results. Please carefully consider your financial situation, risk tolerance, and goals before making any investment or financial decisions.