Your tax deduction may have just doubled.
With all the talk of federal tax reform lately, you may have missed a significant change concerning Ohio’s state income tax deductions. Beginning on January 1, 2018, the state income tax deduction for contributions made to Ohio’s 529 plan doubled from $2,000 to $4,000 per beneficiary, per year. *
Ohioans who save for college using Ohio’s 529 plan historically have been able to deduct a portion of their contributions from their state taxable income. Since 2000, this yearly deduction has been capped at a maximum of $2,000 per beneficiary, per year.
Now, in addition to the many potential benefits of a 529 plan – including the power of compound interest, tax-free earnings, and tax free withdrawals – Ohioans can also deduct up to $4,000 of contributions per beneficiary from their state taxable income.
It bears repeating that the $4,000 deduction limit is not a contribution cap. According to collegeadvantage.com, Ohioans who contribute more than $4,000 per beneficiary, per year, can carry forward unused deductions toward their Ohio adjusted gross income for future tax years until all of their contributions have been fully deducted.
There is, however, a limit to the total value of all Ohio 529 plan accounts for a single beneficiary. This limit currently stands at $462,000, and is calculated by adding the current average cost of tuition to the current average cost of room and board needed for seven years at the five highest-cost eligible educational institutions in the United States. Once this limit has been reached, you may not make any additional contributions to any Ohio 529 plan accounts for this beneficiary.
Additionally, contributions to 529 plans are typically considered completed gifts for federal tax purposes. On January 1, 2018, the IRS raised the annual gift exclusion amount to $15,000.
Every dollar saved today for college is a dollar that won’t have to be borrowed in the future. And now, with the increased Ohio state income tax deduction for contributions – it can be even more rewarding to contribute to a 529 plan. Please give us a call if you have any questions or would like to discuss your college saving plans for your children or grandchildren – in Ohio or elsewhere. We are happy to help!
* “State Income Tax Deduction Doubles to $4,000,” www.collegeadvantage.com, January 1, 2018.
SJS Investment Services does not provide tax advice; please consult your tax professional for specific advice. This material has been prepared for informational purposes only.