Dear Clients and Friends of Cornerstone:

As college costs continue to spiral upward, savings for your children or grandchildren’s college education through tax-deferred investment vehicles just go easier.  The in-state Ohio resident tax deduction for 529 plan contributions has now doubled up to $4,000 per beneficiary.  Effective in tax year 2018, this increase provides the donor with a tax incentive while also allowing tax-free investment growth when the funds are used for qualified post-secondary education expenses.  If you want to setup a 529 plan for a loved one, or want to take advantage of the new tax incentive, please contact your advisor.

If you would like to refer back to any previous newsletters we have published, you can find them on our website. Please be sure to visit www.ccadvisors.com.

– Cornerstone Capital Advisors

Ohio Increases Deduction for 529 College Savings Accounts
Posted by Brad Schueler

Relevant to many of our clients and their loved ones are the rapidly increasing costs of college education in our country.  Corresponding to this has been an ever increasing amount of debt being taken to fund post-secondary education.  Many turn to the tax-free growth opportunities offered within a 529 College Savings plan to defray these costs.  As college costs continue to increase, it’s important that we use all the investment vehicles and tax benefits at our disposal to help defray these costs.

Here in Ohio, state residents have access to the Ohio 529 Savings Program.  Most recently Ohio has offered in-state residents utilizing this program up to a $2,000 state income tax deduction per year, per beneficiary.  Recently (June 30, 2017), Governor John Kasich signed into law Ohio’s Biennial Budget Bill, which includes a provision that increases this amount up to $4,000 per beneficiary, doubling the amount of state tax deductions previously offered annually to residents beginning January 1, 2018.  This effectively serves as an additional financial incentive to those Ohio residents wishing to help loved ones pay for their higher education.

To display the benefits of saving in a 529 plan, here is an example:

John Smith becomes a grandfather for the first time on January 1, 2018.  He decides he’s going to put $4,000 in a 529 College Savings Plan for his new grandson, Lucas.  He then plans to put $333.33 per month ($4,000 per year) into this account until his grandson reaches age 18 and is ready to go to college.  Let’s assume his investments earn 6% annually. We assume also that John is in the top tax bracket in the state of Ohio which is approximately 5%.1

Through the Ohio 529 Savings Program, John will be able to over 18 years:

  • Contribute $76,000 toward his grandson’s education
  • Save $3,800 in Ohio taxes
  • Earn $62,400 of tax free investment returns when used for qualified postsecondary education expenses

Everyone’s financial goals and tax considerations are different but there is no doubt that the 529 College Savings Program offers an attractive way to save for post-secondary education.  Ohioans now have the added benefit of this increased state tax deduction as an additional incentive to save in this way.  If you’d like to have a conversation surrounding what this may mean for you, please contact us so we can set up time to discuss this in light of your financial plan.

1The top income tax bracket in the state of Ohio for year ending 2016 was 4.997%.