Dr. Stephen Covey notes in his book, The 7 Habits of Highly Effective People, that successful people often “begin with the end in mind.” We at HCM live and breathe that maxim daily, whether it be mapping out your successful retirement plan, forecasting your yearend tax liability, or helping to strategize the best way to pay for future education expenses for the people in your life. With the new school year in full swing and college application season upon us, we’d like to provide some tactics to plan for educational expenses both now and in the years down the road.
Private K-12 Expenses
If you live in Ohio, ensure you are taking advantage of the Ed Choice Expansion Scholarship. This program is available to anyone living in Ohio who attends an Ohio private school. Unlike the base Ed Choice Scholarship, the Expansion does not depend on the public school district you live in. Rather, it pays a graduated scale of reimbursement based on your household income, with even the highest earning household receiving some financial aid.
Aside from the Ed Choice Scholarship, remember that in 2018 the law changed to allow for up to $10,000 of 529 investment funds to be used for pre-college tuition. From a planning perspective, if you intend to support a child attending private school at any level from kindergarten through college, you can begin funding an Ohio 529 Plan in their name as soon as they have a Social Security number. If you’re really ambitious, you can open a 529 in your name before the child is born, fund it with the intention of the investments growing over time, and then transfer it to the child’s name years down the road.
College Expenses
College is often very expensive, and you can’t necessarily rely on scholarships. As part of HCM’s retirement modeling software, we can project university costs at a given institution in future dollars to help determine the appropriate funding approach you could take to offset some, if not all, of those costs. Using a 529 to help with this expense provides a lot of flexibility, including:
- Contributions into an Ohio College Advantage 529 Plan are eligible for an Ohio state tax deduction of up to $4,000/child. You can contribute extra and apply those dollars to subsequent year tax returns. Even if you did not save for college, you can open an Ohio College Advantage 529 Plan, fund it with money to use for your existing college tuition, and enjoy the current year tax benefit.
- There are dozens of low-cost investment options within the Ohio 529 Plan, ranging from CDs to stock funds.
- The Ohio 529 Plan is nationally recognized as one of the strongest college plan offerings. Investopedia picked Ohio’s 529 Plan as the nation’s best 529 Plan in 2024.
- Contributions from grandparents into 529 plans can reduce their estate tax exposure and benefit from a 2024 law change that no longer requires the student to report grandparent contributions.
Excess 529 Funds
If you find yourself with extra 529 funds after your last child has finished their schooling, there is an option available now beyond just changing the beneficiary. You can use the excess 529 dollars to fund a beneficiary’s Roth IRA contribution for a given tax year, thus helping them plan for retirement. There are stipulations and timing requirements that must be met to properly execute this, so it is best to discuss this with your advisor; however, in some instances this option could make a lot of sense. In Conclusion When it comes to financial planning, whether it be for retirement, taxes, education, etc., it pays to take a holistic approach and evaluate yourself along the way. Whatever your “end” may be, we at HCM will be with you in your journey to help ensure you get there.