Ohio 529 College Savings Plan

This bill authorizes the Ohio Tuition Trust Authority (OTTA) to create a new variable college savings program.  This program allows participants to take advantage of section 529 of the Internal Revenue Code established by the United States Congress in 1996 that allows for tax-deferred savings for educational purposes.  This new program offers an alternative to other OTTA programs by offering participants an investment vehicle that has a higher investment risk, but also a potentially higher rate of return as the plan is linked to market performance.  There is no guarantee that this plan will keep pace with tuition inflation. 

OTTA currently administers the Prepaid Tuition Program, which enables participants to purchase units for credit towards future tuition expenses at today’s prices.  This program differs from the variable college savings program in that the program is guaranteed to keep pace with tuition inflation and is backed by the full faith and credit of the state.  This program began in 1989, and by FY 1999; OTTA had over 82,000 children enrolled in this program with assets totaling $409 million. 

It is likely that contributions to OTTA will increase by more than 25 percent per year with the addition of the Variable Savings Plan.  The new tax deduction as well as the addition of a college savings plan with a potentially higher return on investment should attract more program participation.   In addition, qualified withdrawals from either program are taxed federally as income to the student and not to the contributor, which provides an additional tax incentive for investment.  Any increases in OTTA sales revenue will further reduce state and local revenues from income tax.