COLUMBUS, Ohio – A proposal introduced in Ohio Senate last month could sharply increase state income tax savings for people contributing to 529 Ohio college saving plans.
Use the calculator with this story to estimate the potential tax savings for you.
Here are the details:
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Tax savings for college savings?
Find out how much you could save on Ohio income taxes by contributing to a 529 college savings plan. The current limit is $2,000 a year per beneficiary. A proposal could increase that to $10,000.
Enter whole dollars; no decimals.
529 contribution:
Personal income:
Business income:
Family size: 1 2 3 4 5 6 7 8 9
Two working spouses? No Yes
Savings — $
Tax bill without 529 contribution: $
Tax bill with 529 contribution: $
Estimates are basic calculations, without other special deductions.
— Rich Exner, cleveland.comSome users may need to use this link instead.
A tax credit or a tax deduction?
This is not a tax credit. It is a tax deduction, meaning the amount of income that is taxable in Ohio can be lowered by making contributions to 529 savings plans.
Currently, Ohio taxpayers can reduce their taxable income by up to $2,000 per beneficiary per year for money set aside in 529 college savings plans. (For example, a parent contributing to plans for each of two children could deduct up to $4,000.)
The proposal sponsored by Republican Sens. Jay Hottinger of Newark and John Eklund of Munson Township would increase the amount per beneficiary to $10,000.
You do not have to be a parent to contribute.
How much money is saved?
The savings depends on the amount of your taxable income, because higher income people pay higher tax rates.
For example, a $2,000 contribution would reduce the tax bill by an estimated $62 for a family of four making $65,000 a year. The savings would be about $87 a year for a family of four making $130,000.
With a $10,000 contribution under the proposal, the family making $65,000 could save $367 a year, and the family making $130,000 could save $437 a year.
Use the calculator to estimate savings for different contribution amounts and income levels.
Are these the only savings?
The immediate savings for contributing to a 529 plan is on Ohio income tax returns. There is no a reduction in federal taxes.
However, the investment gains are free of both federal and state taxes when they are withdrawn, as long as the money is used for qualified college expenses. Qualified expenses includes tuition, fees and books.
Where can I find more details?
- The Ohio Tuition Trust Authority provides more detailed answers at its website’s FAQ page at this link.
- Federal rules, which cover accounts and qualified withdrawals, are provided by the Internal Revenue Service at this link.
What’s next?
At this point, the change is just a proposal introduced in the Ohio Senate. This still needs approval by the Ohio Senate, the Ohio House and the governor.
A decision may not be made until the state completes it’s budget process at the end of June.
Rich Exner, data analysis editor for cleveland.com, writes about numbers on a variety of topics. Follow on Twitter @RichExner.
Previously:
- How would separate tax changes proposed by Gov. John Kasich impact you? Use our calculator.
- How much do you pay in sales taxes each year? See estimates.
- Property tax rates for each place in Greater Cleveland, and changes since 2000. (Database)
Our editors found this article on this site using Google and regenerated it for our readers.
