My wife and I are expecting our first child in a few months, and we know college education will be a huge expense in the not too distant future. After researching college savings plans and comparing 529 plans and Coverdell ESAs, I decided to open a 529 College Savings Plan.
We opened our 529 Plan in the state of Ohio – the College Advantage 529 Plan. There are several reasons I chose this plan and I thought I would share them with you today.
Choosing the 529 Plan over the Coverdell ESA
We chose the 529 College Savings Plan over the Coverdell Educational Savings Account (ESA) for several reasons. The chief reason is that our child isn’t born yet, so that is the only option available to us right now (although there is no reason we couldn’t wait a few months, or even a few years to get started with a Coverdell ESA). With the 529 Plan, my wife and I can open a College Savings Account in our own name and later transfer the assets to our children, or use the money for ourselves if we wish. This is a level of flexibility that the Coverdell does not offer. People can open both types of accounts, so we can decide to open a Coverdell ESA if we decide we want one.
Tax breaks, higher contributions, and flexibility. My wife and I are Ohio residents and we are eligible to deduct contributions from our Ohio state taxable income. The maximum contribution limit for 529 plans far exceeds the $2,000 annual contribution limit of Coverdell ESAs (which may revert to $500 per year if Congress does not extend the $2,000 contribution limit). Finally, I think 529 plans are more flexible that Coverdell ESAs because of more lenient contribution and withdrawal limitations.
Ohio College Advantage 529 Plan
The Ohio College Advantage 529 Plan is one of the better 529 College Savings Plans available, and it’s even better for us because we can deduct our contributions from our state income. What’s even better is that you do not need to be an OH resident to open this account.
Here are some of the other benefits of the Ohio College Advantage 529 Plan:
- No enrollment fees or maintenance fees.
- Wide variety of investment choices including low cost Vanguard plans (most investments feature extremely low expense ratios).
- Low initial investment requirement of $25 makes it easy for anyone to open an account.
- Open to residents of any US state.
- $25 sign up bonus.
$25 Sign up Bonus for opening a College Advantage 529 Savings Plan in OH
The $25 sign up bonus was the reason I decided to open an account now instead of after our child is born. I will initially start making contributions to my account, and should I decide to go back to school to get an MBA or another degree, I can use the money for myself. Otherwise, I can use the money for my children when they reach college age.
How to get the $25 College Advantage sign up bonus.
- Open a new College Advantage 529 Savings Plan with a minimum of $25.
- Enter the following referral code: 2534946
- Receive your $25 bonus within 7-10 business days.
- Offer expires December 18, 2009.
Refer friends and family. You can earn $25 for each new account holder you refer. You can also refer your own children to get additional referrals for yourself. For example, you can sign up for an account and get a $25 bonus, then refer your child for another $50 ($25 for your referral, and a $25 bonus). You can rinse and repeat for each child that you have. Each parent can do this, so a family of three can have 6 accounts (Dad for self, for Mom, and for Child; and Mom for self, for Dad, and for Child). For more information, check out the College Advantage Referral FAQ page.
Must use referral code to get the bonus! Remember, to get your $25 bonus, you must use the following referral code! ~ 2534946
{ 9 comments… read them below or add one }
Thanks for the great overview. The Ohio plan really does look great!
Thanks for the great overview!
I have thought about the Ohio Plan, but since I live in Indiana and there is a 20% tax credit for contributions to the Indiana plan, I have been putting my money there.
Luke, it sounds like you have a better deal with the tax benefits in your state. The OH plan isn’t for everyone, but it can’t hurt to look into it!
2million wrote about this on his blog and the reality is that since anyone can open a 529 plan for anyone, that $25 referral and bonus thing can be totally abused. I think that people looking to get into this program with the right intentions should take full advantage of the offer, but it does leave room to game the system. On the one hand, I can see the appeal. If Ohio’s making it available then why not take advantage. On the other, I don’t think gaming the system is a good way to build the account. I don’t know all the rules though, can you consolidate all those accounts if they’ve got different beneficiaries? I know you can change the beneficiaries, but I don’t know the rule on those Ohio accounts. Also, is there a time frame that an account must be kept open to keep the referral and bonus?
Kristy: The way it is set up leaves room for people to take advantage of this offer by opening multiple accounts. Abuse, though depends on how you look at it. I could open a 529 for myself and for my wife with the idea that one or both of us may go back to school, and my wife could also open an account in each of our names. Then when our child arrives, we can both open an account for our child with the intent that the money is used for our child’s education. That would be 6 accounts for our family of three, and over $200 in referrals and bonus money. Should neither my wife or I use our account, we can use those funds for our child’s education when the time arrives. My wife and I plan on using our accounts to save for college education and having multiple accounts gives us a lot of flexibility in how we do that.
However… there is no time limit for when you make the withdrawals, so people are able to open accounts just to get the $25 which they plan to immediately withdraw (subject to taxes and a 10% penalty). Some people may look at that as abuse if they have no intention of ever funding the accounts beyond the initial requirement for the $25 bonus.
Someone sort of mentioned it above, but I think it is important to reiterate that most states offer their own 529 plan, and by participating in that plan (as opposed to Ohio State) you are LIKELY to get some sort of State Income Tax Deduction.
For Example – in NY you get up to a $5,000 deduction for $$$ put into a NY 529!
My Journey: Very true, but there are quite a few states that don’t have any income taxes, and some states that offer little to no tax incentive for contributing to a 529 plan. it always pays to investigate your options.
my daughter is going out of state for college. she needs a car for that. can i use my funds to help purchase a car.
Rick, To be honest, I’m not certain. Qualified expenses usually include items such as tuition, room, board, books, lab fees, and computers.
Here is the IRS page that discusses qualified higher education expenses in more detail – http://www.irs.gov/pub/irs-pdf/p970.pdf
Be sure to check your 529 plan for more details.