A 529 Tax-Advantaged Savings Plan is designed to encourage saving for future education costs and are authorized by Section 529 of the Internal Revenue Code. Oklahoma has a state-sponsored plan called the Oklahoma 529 College Savings Plan (OCSP). An OCSP is a way for contributions towards an individual’s education to grow over time in a low-cost investment account.
Here are 10 facts you might not know about OCSPs:
1. Plans are simple to open and use. Transfer funds directly from a bank account, mail a check, or have funds automatically deducted from a paycheck pre-tax.
2. Beneficiaries can be changed, if necessary, from the time of the OCSP’s creation to an eligible family member of the former beneficiary.
3. You can choose investment options to match your risk tolerance, timeline, and investment preferences.
4. Anyone can contribute to an OCSP. The Oklahoma 529 College Savings website has “gift certificates” you can print to show your gift amount.
5. Funds can be used prior to college. Withdrawals of up to $10,000 per year per beneficiary are permissible if the funds are used to pay for expenses in connection with enrollment and attendance at an elementary or secondary public, private, or religious school.
6. Funds from an OCSP can be used for tuition at most accredited colleges and universities in the United States, and even some schools abroad.
7. Expenses other than tuition may qualify including, required fees, certain room and board costs, books, supplies, as well as computers and related technology costs such as internet access fees and printers. Additional equipment required for attendance may also qualify.
8. Funds up to $10,000(including principal and interest) can be applied to any qualified education loan of either an OCSP beneficiary or a sibling of the beneficiary.
9. Contributions are generally tax deductible from Oklahoma taxable income up to $10,000 per year for single returns and up to $20,000 per year for joint returns, with contributions in excess of this amount deductible over the subsequent five tax years. While contributions are not deductible on your federal tax return, any investment earnings in the OCSP grow tax-deferred, and distributions to pay for the beneficiary’s qualified education expenses come out tax-free.
10. There are no gift taxes on contributions up to $16,000 per year for single returns and $32,000 per year for joint returns.
If you have questions about OCSPs or would like to discuss other tax-saving strategies for you or your beneficiaries, please contact our office.
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