As parents, providing the best quality education for our children is at the forefront of our priorities from the time they are ready to start school until they graduate from college. Thankfully, the Oklahoma 529 College Savings Plan provides a way we can save money for our children’s education, beginning with K-12th grade and continuing on into their college years.
Yes, you read that right. These educational tax benefits now apply to K-12th!
Astoundingly, next to mortgage debt, the second highest class of consumer debt is student loan debt from higher education. Student debt is higher than auto and credit card debt. Statistics reveal that the average college student graduates with over $37,000 in student loan debt. How can we help our kids avoid a debt load when the price of higher education continues to rise? Saving for their college education becomes doable when we:
- Start early – time is on our side when it comes to saving
- Have a college savings plan
- Stay consistent to do our part
- Solicit the participation of our son or daughter when they are high school students
Oklahoma 529 College Savings Plan
The Oklahoma 529 College Savings Plan (OCSP) offers some great perks, and getting started on the plan is simple. This state-sponsored savings plan is designated to prepare for your child’s higher education financial needs. Contributions to the savings plan are not limited to parents—grandparents, family members, and others are welcome to contribute.
The simple start-up for the OCSP account helps families position themselves for a better future for their children and grandchildren. Here are some advantages to Oklahoma’s 529 College Savings Plan:
- K-12th grade students can use up to $10,000 annually for their school tuition.
- Earnings grow tax free.
- The program includes gift and estate tax planning benefits.
- Withdrawals are tax-free for state and federal taxes when used for approved higher education expenses.
- Savings funds can be used at most accredited colleges and universities in the United States, and some abroad.
- Up to $10,000 can be used annually for K-12 school tuition per student.
- Funds can be applied toward tuition as well as many other higher education costs such as:
- Required fees
- Certain room and board costs
- Books
- Supplies
- Computers
- Printers
- Technology costs such as internet access fees
- With most 529 plans, your son or daughter’s school choice isn’t affected by the state of your savings plan, so you can have a 529 savings in one state and your child can attend a college or university in another and use the funds there.
- The convenience of the OCSP helps you stay on track with saving. Set up automatic contributions from your payroll deduction or bank account, making the process easy to implement.
- Because parents are the account owners, funds are treated as belonging to the parent rather than the child, minimizing the impact on affecting the child’s eligibility for financial aid.
- It’s affordable to start an account with as little as $100. There are no application fees and no maintenance fees.
- Unused funds can be used for other eligible siblings. If your child doesn’t need all the money you have put into the OCSP account, you can designate a new beneficiary in your family without a penalty.
- There is no need to wait until college to use the funds you have saved. Up to $10,000 in tuition costs can be used annually for K-12th grade students.
Maximize Tax Deductions
When filing taxes and preparing your tax return for 2018, begin looking ahead at tax strategies for your 2019 taxes and understand how starting an Oklahoma 529 College Savings Plan (OCSP) can help with next year’s tax preparation while preparing for your child’s future. Here are some tax benefits of the OCSP:
Federal Income Tax Benefits
- Contributions are not deductible on your federal tax returns, but any investment earnings can grow tax-deferred.
- Distributions to pay for your son or daughter’s qualified education expenses come out federally tax-free.
State Income Tax Benefits
- Contributions to the OCSP are generally tax deductible up to $10,000 per year for someone filing as an individual, and $20,000 per year for a married couple filing jointly.
- Contributions that exceed the above amounts can be deducted over the following five tax years.
- The earnings on the savings accumulate free of Oklahoma income tax.
- Qualified withdrawals are not subject to Oklahoma income tax.
- Non-qualified and federally taxable withdrawals are included in income and subject to tax, so consult a tax professional regarding your specific circumstance.
Estate Tax Planning Benefits
- No federal gift tax on contributions up to $15,000 per year for individuals and $30,000 for married couples.
- If pro-rated, gift amounts are allowable up to $75,000 for individuals, and up to $150,000 for married couples. You can make a one-time gift equal to the five-year amount, and it can all qualify for the federal gift tax exclusion. Consult a qualified tax professional for more information.
Parents aren’t the only ones who can help with college tuition. Here are some ways your children can participate in preparing for their higher education financial needs:
1. Take Advanced Placement (AP) classes during high school
AP classes count as college credit once you pass them during high school. The more you can challenge yourself to conquer the AP classes offered in high school, the fewer credits you will have to take during college. The less credits you need, the lower your tuition will be, saving you big bucks during college.
2. Apply for as many scholarships as possible
Colleges have a certain amount of scholarship money to give out each year, and there’s no reason why they shouldn’t give it to a deserving prospective student. Apply for scholarships in the areas you excel in such as academics, athletics, or music. Many schools will stack your scholarships on top of each other, so apply in more than one area.
3. Get a good job and save for college
As a high school student, there are plenty of jobs you can do throughout the school year as well as during the summer. Create a budget and assign each dollar you earn before it shows up in your bank account. If you make savings your first “bill” of the month, you will always have money to save. As your savings account grows, you can enjoy the satisfaction of knowing you’ve worked hard to save and prepare for your higher education.
Make your tax preparation easy with the help of the skilled professionals at Shockley Bookkeeping. See our Personal Tax Services and schedule a consultation.