January 21, 2014
Relatives and friends accustomed to making regular, automatic contributions to Ohio’s CollegeAdvantage 529 savings accounts that they don’t control will have to make changes to keep the money flowing into the accounts.
The Ohio Tuition Trust Authority has switched to a new recordkeeping system that offers several improvements but, for now, doesn’t allow that type of automatic contribution.
The reason such automation isn’t allowed under the new system is that banking information of those contributors could be seen by the person who controls the account, said Paul Paeglis, the authority’s executive director.
For example, the parent who controls a child’s account would be able to see, say, a grandparent’s banking information.
About a third of all accounts receive automatic contributions; most of the contributions come from the account holder, not a third party, Paeglis said.
The authority is working on changes that will restore the ability of third parties to make automatic contributions but, in the meantime, people will have to use other options, Paeglis said.
“We want to encourage that, but we want to be mindful of our system limitations,” he said.
One option is for people to give the money directly to the account holder. In the case of the example, the grandparent would give the parent money to be deposited. But the grandparent would miss out on the state tax deduction.
Alternatively, contributors could send a paper check to the authority along with information about the account it should be invested in.
One option that many people might choose is to set up their own account for the child that they can control directly, Paeglis said. That would allow the resumption of automatic deductions, he said.
“There is nothing that prohibits more than one account” per child, he said.
That’s what Martin Williamson of Worthington plans to do.
He had money automatically deducted from a bank account to be put into 529 accounts for his grandsons. “A lot of grandparents do this,” he said.
He did not know the withdrawals had stopped until he called the authority about increasing the amount he contributes. “I never heard anything from them at all, anytime,” he said.
Williamson said he could give the investment money to his son, who has control over the account, but then he couldn’t claim the tax deduction.
Paeglis said that, over time, the new recordkeeping system with Upromise Investments will show improvements over the in-house system that the authority had used, including electronic delivery of statements and tax documents.
Upromise is a manager of many 529 plans across the country.
Managing contributions and where the money goes will be easier under the new system, Paeglis said.
In addition, account holders will be able to link their accounts more simply with programs such as Upromise, which allows a portion of the money that account holders and others spend at eligible retailers to go into the 529 account.
“The system is easier to use from what our system has been,” Paeglis said.
More than half of the 640,000 accounts the authority manages have re-registered under the new system.
“Hopefully, they’ll do more business with us electronically than on paper,” he said.
The authority is a state agency that has been in operation since 1989. Contributors have an assortment of investment options: mutual funds, savings accounts and certificates of deposit.
Anyone, including those out of state, can set up a plan for children, relatives or others, even themselves. Account balances accumulate tax-free, and withdrawals used for any qualified higher-education expenses are exempt from state and federal income taxes.