Saving for college in a 529 plan has many benefits; ranging from the power of compound interest, a wide variety of investment options, tax-free earnings, and tax-free withdrawals. For Ohioans saving with Ohio’s 529 Plan, there’s also a deduction from their state taxable income for contributions made to CollegeAdvantage. Since 2000, the yearly deduction has been set at a maximum of $2,000 per account but the New Year brings a big change to this Ohio tax deduction.
Beginning on Jan. 1, 2018, the state income tax deduction for contributions made to a CollegeAdvantage 529 plan doubles from $2,000 to $4,000 per beneficiary, per year. This increase heightens the advantages of saving for college costs in Ohio’s 529 Plan.
Keep in mind that as with the old deduction amount, the $4,000 deduction limit is not a contribution cap. For Ohioans who contribute over $4,000 per account, per year, they can carry forward this deduction to their Ohio adjusted gross income for subsequent tax years until all of their contributions are fully deducted.
Contributions to a CollegeAdvantage Direct Plan Account are generally considered completed gifts for federal tax purposes. There are no federal gift tax consequences under a certain dollar amount. On Jan. 1, 2018, the IRS raised the annual gift exclusion amount to $15,000. With this increase, a contributor may elect to treat up to $75,000 of the contributions ($150,000 for married couple) as having been made ratably over a five-year period.