Parents Reap Tax Savings Benefits With The Ohio 529 Tax Deduction

Parents can reap the benefits of an Ohio 529 tax deduction by investing in a college savings plan for their child's educational future. Ohio has two college savings plans which allow a $2,000 state tax deduction each year for state income tax payers to receive the Ohio 529 tax deduction.

The following information outlines the additional advantages and important rules regarding the tax deduction. You should discuss how the deduction applies to your specific circumstances with a tax, legal or financial advisor.

You can only take advantage of the Ohio 529 tax deduction through the CollegeAdvantage 529 Savings Plan managed by the Ohio Tuition Trust Authority and the Putnam CollegeAdvantage Plan which is managed by Putnam Investments. You must be an Ohio state tax payer to receive the deduction.

There are no income limits for taking the Ohio 529 tax deduction. Contributions can be as little as $15 per month and there are no enrollment or maintenance fees.

Even though you must be an Ohio state tax payer to benefit from the deduction, the beneficiary of the 529 college savings plan does not have to be an Ohio resident. He or she can live in any state and use the funds to attend any eligible institution in the United States or abroad.

Parents are not the only ones who can take advantage of the Ohio 529 tax deduction. A grandparent, aunts, uncles - anyone who makes contributions to an Ohio 529 college savings plan - is eligible to take the state tax deduction as long as they pay Ohio income taxes.

You may open a college savings account for more than one beneficiary, but you cannot claim the maximum Ohio 529 tax deduction for each beneficiary. The maximum state tax deduction can include contributions to more than one account, but the total cannot exceed the maximum allowed.

It is important to note that if you contribute more than the maximum allowed for the Ohio 529 tax deduction, you can roll forward the additional amounts for up to four years. The process can be repeated every five years.

Earning from either one of Ohio's 529 college savings plans is tax-free. Additionally, the money invested will pay for qualifying expenses such as tuition fees, textbooks, and room and board and can be withdrawn without incurring federal and state income tax. Funds withdrawn for non-qualifying expenses are subject to a 10 percent federal income tax penalty.