The Ohio State Senate on Wednesday unanimously passed legislation to permit more families to take advantage of an income tax deduction that incentivizes saving for college.
The measure, sponsored by State Senators Jay Hottinger (R-Newark) and Andrew Brenner (R-Delaware), applies the deduction to all savings programs nationwide established under Section 529 of the federal Internal Revenue Code. Current law allows Ohioans to take the deduction only for contributions to Ohio’s own 529 program.
Every state and the District of Columbia sponsors at least one variety of 529 plan, which can take the form of a prepaid-tuition arrangement or an education-savings plan. A tax filer can deduct up to $4,000 dollars annually when contributing to a 529 plan as long as the taxpayer ultimately uses those savings to pay education costs. The program can be used for primary and secondary education expenses as well as college tuition.
“This bill will encourage and reward more Ohio families to save for their children’s college tuition and expenses,” Hottinger said after the measure passed. “It will do that by giving these taxpayers the option to invest in another state’s plan, which may be a better option for their family’s needs.”
Under the Hottinger-Brenner bill, the $4,000 deduction limit would remain. The legislation would take effect immediately after enactment. It awaits consideration by the Ohio House of Representatives.
The first state-based education savings plan began in Michigan in 1986. Eight years later, the U.S. Court of Appeals for the Sixth Circuit ruled that income generated by the program should not be federally taxable. In 1996, Congress wrote Section 529, outlining federal tax rules for state-based college savings plans. In 2001, President George W. Bush signed the Economic Growth and Tax Relief Reconciliation Act, which made the 529 plans even more tax-advantageous and spurred their widespread use.
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Bradley Vasoli is managing editor of The Ohio Star. Follow Brad on Twitter at @BVasoli. Email tips to [email protected].
