This is clearly not the headline most parents see when reading up on how to save for college. However, parents (or grandparents) looking to save for their children’s future college expenses have a great tool available to them with CollegeAdvantage, Ohio’s direct 529 plan. These plans allow savers to invest after tax dollars into the 529 plan for purposes of higher education. Similar to a Roth IRA, a 529 plan grows tax deferred and offers tax free withdrawals as long as they are used for qualified higher education expenses. This means that any growth in the account is never taxed! In addition, the contributions can give the investor a state income tax deduction (as long as they are Ohio residents) of up to $2,000/year/person.
The Ohio Tuition Trust Authority recently announced a record keeping fee reduction of .01%. This is a positive trend we are seeing industry wide as mutual fund companies and plan sponsors compete for business. The end result is that investors have less drag on their investments from expenses. CollegeAdvantage offers a wide range of aged-based and risk-based funds that fall under .20% in expenses. It wasn’t long ago that an investor wanting to save for college in one of these types of plans had to pay an upfront sales charge of 5.75% along with annual fund expenses of over 1%.
While we can’t control what a university charges for tuition, we can keep the costs down while saving for that purpose. As a financial planner and a father of two young boys, this is one positive in an otherwise stressful topic.
For more information, click here, or better yet, contact PDS, we’d love to help you!