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Income - 529 Plan Account Deduction

Income - 529 Plan Account Deduction

Ohio 529 (CollegeAdvantage) savings plans allow individuals to save for higher-education expenses tax-free. Please see www.collegeadvantage.com for more information.

Taxpayers can deduct contributions they made to an Ohio 529 (CollegeAdvantage) savings plan. This deduction is limited to $4,000* per beneficiary per year. The deduction is not limited to the savings plan owner or beneficiary. Instead, any taxpayer who makes a contribution is entitled to the deduction. Taxpayers may not deduct:

  • Amounts contributed by another person; OR
  • Amounts contributed to another state's 529 savings plan.

Contributions exceeding the $4,000 limitation may be carried forward and deducted on future year's returns until fully utilized, subject to the annual limitation of $4,000 per beneficiary.

Example 1: Katrine opens an Ohio 529 savings plan for her son. Katrine’s friend, Cale, contributes $5,000 to the savings plan for Katrine’s son. Cale is entitled to a $4,000 deduction on his current-year return, and has $1,000 he can deduct in a future tax year. Katrine is not entitled to any deduction related to Cale’s contribution.

Married taxpayers may deduct up to a maximum of $4,000 per beneficiary whether their filing status is married filing jointly or married filing separately.

Example 2: Paolo and Allison are married but file separate Ohio income tax returns (married filing separate status). They each contribute $5,000 ($10,000 total) to an Ohio 529 savings plan for their grandson. They can only deduct a maximum of $4,000 on their current-year returns. Thus, they must decide how much of the deduction each will use and how much each will carry forward for use in future tax years. For example, they can each deduct $2,000, or one could deduct $1,000 and the other could deduct $3,000.

Example 3: Madison opened an Ohio 529 savings plan for her niece and contributed $10,000 in calendar year 2020. Madison did not deduct any portion of the contributions on her tax year 2020 return because it did not provide a tax benefit. Madison only deducted $3,500 on her tax year 2021 return. She still has $6,500 that can be carried forward to future tax years, subject to the $4,000 per year maximum.

*For tax year 2017 and prior, the deduction was limited to $2,000 per beneficiary per tax year.

See R.C. 5747.70(A).

The individual who makes the contribution is entitled to the deduction. Contributions can be made by anyone, such as the Ohio 529 savings plan owner, the beneficiary, friends or family members.

See R.C. 5747.70(A).

Generally, any contributions made to an Ohio 529 savings plan (including a rollover amount from another state’s 529 savings plan) are eligible for the deduction, subject to the same yearly limits and carry forward rules.

See the FAQ “What is the deduction for Ohio 529 Plan contributions?” for more information.  

Ugift: Ugift allows 529 plan owners to encourage family and friends to contribute to a 529 savings plan in lieu of traditional gifts. Owners of the 529 plan share a unique Ugift code for each beneficiary with others, who use the code to make contributions into the 529 savings. Since the contributions go directly into the 529 savings plan, the person who makes the contribution is eligible for the Ohio income tax deduction. The owner of the plan is only entitled to a deduction if s/he makes the Ugift contribution.

Upromise: Upromise allows the owner to earn rewards points in their Upromise account. These rewards points can be transferred into a designated 529 savings plan, or deposited into the owner’s bank account. Rewards points can be earned by the owner or any other individual linked to the owner’s Upromise account.

Since the rewards points are not directly contributed into the 529 savings plan, the Upromise account owner is only eligible for the Ohio income tax deduction if s/he transfers the money from the Upromise account to the Ohio 529 savings plan. An individual who earns rewards points into another person’s Upromise account is not eligible for the Ohio income tax deduction.

Distributions from an Ohio 529 savings plan are generally tax-free as long as they are used for qualified higher education expenses as defined in section 529 of the Internal Revenue Code. See the FAQ "What are 'qualified higher education expenses'?" for more information.

However, some amounts must be added back on the Ohio Schedule of Adjustments (formerly Ohio Schedule A) as income, and thus are subject to Ohio tax, if they meet all of the following:

  • The amount is not otherwise included in federal adjusted gross income;
  • The amount was not used to pay for qualified higher-education expenses and was not distributed due to the beneficiary's death, disability or receipt of a scholarship; AND
  • The amount was subject to the Ohio Schedule of Adjustments (formerly Ohio Schedule A) deduction for Ohio 529 plan contributions on any taxpayer’s return for any tax year.

See R.C. 5747.70(D).

Ohio’s 529 plan uses the same definition of “qualified higher education expenses” found in IRC §529(e)(3). Thus, if an expense is a qualifying higher education expense under federal law, it is a qualifying higher education expense under Ohio law. Some examples include:

  • Higher education tuition and fees;
  • Higher education books, supplies, and equipment; AND
  • Kindergarten through grade 12 tuition (up to $10,000 per year).

See IRS Publication 970 for more information.

You should respond in writing by the due date shown on the notice. Your response must include proof of your contributions to an Ohio 529 plan for each beneficiary. You can prove your contributions by providing:

  • Proof of payment (such as cancelled checks, bank statements, credit card statements, etc.); AND
  • Proof of an Ohio 529 Account (by providing the plan year-end statement).

If the statement is unavailable (e.g. you are not the account holder), you may provide a list of the beneficiaries along with the contribution dates and contribution amounts. If the deduction amount reported is based on a prior year contribution carryforward amount, please provide proof of contributions in the prior years for each beneficiary.

You may submit this by one of the following options:

  • Online Notice Response Service
    • After registering, select the following for each category:
      • Tax Category - Income Tax
      • Form Name - Line Item Review
      • Fax Number - 2532341373 (no dashes)
  • Mail:
    Ohio Department of Taxation
    Personal and School District Income Tax
    PO Box 182847
    Columbus, OH 43218-2847
  • Fax: (253) 234-1373

Note: The Ohio 529 plan year-end statement alone is not proof of payment. In order to verify the deduction, you must provide both items listed above and requested in the notice.

Additional Resources

Additional Resources