Oregon 529 Account: How It Works and Its Tax Benefits

A 529 plan is an investment account designed to encourage saving for future education costs. The Oregon College Savings Plan is a state-sponsored program providing a tax-advantaged way for families to set aside funds for this purpose. As an investment vehicle, it allows contributions to grow over time to pay for a beneficiary’s education. The plan is administered by the state, and anyone, including parents or grandparents, can contribute.

Tax Advantages of the Oregon Plan

The Oregon College Savings Plan provides notable tax benefits. Oregon taxpayers who contribute to an account may be eligible for a refundable state income tax credit, meaning you can receive it even if you owe no state income tax. The maximum credit is based on income but can be up to $180 for single filers and $360 for those filing jointly.

From a federal perspective, the money invested grows on a tax-deferred basis. This means that as investments generate earnings through interest or capital gains, no federal income tax is due on that growth year after year. This allows the account to compound more effectively compared to a standard taxable investment account.

When funds are withdrawn, they are free from both federal and Oregon state income tax, provided the money is used for qualified education expenses. This combination of tax benefits makes the plan a powerful tool for education savings.

Establishing and Funding an Account

Any U.S. citizen or resident alien can open an Oregon College Savings Plan account. The account owner maintains control over the funds, investments, and beneficiary. The beneficiary can be a child, grandchild, another relative, a friend, or the account owner, and there are no state residency requirements for either party.

To start an account, you must provide personal information for both the owner and beneficiary, including their full legal names, physical addresses, dates of birth, and Social Security or Taxpayer Identification Numbers. The process is typically completed through an online application.

The Oregon plan offers several investment portfolios. Age-based portfolios, also known as enrollment-date portfolios, automatically shift from more aggressive to more conservative investments as the beneficiary nears college age. Static portfolios maintain a fixed allocation of stocks and bonds, and the plan also provides individual fund options, including a Social Choice portfolio and an FDIC-insured option.

Contributions can be made as a one-time payment or through recurring bank transfers. The minimum initial contribution is $25, or as low as $5 with an automatic investment plan or payroll direct deposit. The plan allows for an aggregate account balance of up to $400,000 per beneficiary.

Using Your 529 Funds

Funds from an Oregon 529 account can be used for Qualified Higher Education Expenses (QHEE). These federally defined expenses include tuition, mandatory fees, books, supplies, and required equipment at eligible colleges, universities, and vocational schools. For students enrolled at least half-time, qualified room and board costs are also covered.

The use of 529 funds has also expanded. Account owners can withdraw up to $10,000 per year for K-12 tuition. A lifetime limit of $10,000 can be used to repay qualified student loans for the beneficiary or their siblings, and funds can cover costs for certain registered apprenticeship programs.

To request a distribution, the account owner can initiate a withdrawal online, and payment can be sent to the owner, beneficiary, or the school. Distributions must be taken in the same calendar year that the qualified expenses were paid. For example, if you pay for a spring semester in December, the withdrawal must occur before the end of that year.

Non-Qualified Withdrawals and Rollovers

A distribution used for anything other than a qualified education expense has tax consequences. The earnings portion of a non-qualified withdrawal is subject to federal income tax and a 10% penalty. For Oregon residents, the state will also recapture any income tax credits claimed on the contributions being withdrawn.

An account owner can perform a tax-free rollover of funds from the Oregon 529 plan to another state’s 529 plan once every 12 months for the same beneficiary. This allows savers to change plans if another state’s offerings better suit their needs.

Under the SECURE 2.0 Act, unused 529 funds can be rolled over to a Roth IRA for the beneficiary. This is subject to several conditions, including that the account must be open for at least 15 years and contributions from the last five years are ineligible. There is a $35,000 lifetime rollover limit, and the annual amount cannot exceed the yearly Roth IRA contribution limit ($7,000 in 2025). The beneficiary must also have earned income equal to the rollover amount for that year.