The State Fair, the Cyclones and Hawkeyes, Blue Bunny Ice Cream, the Bridges of Madison County and the Field of Dreams. Everyone has their list of favorite things that make Iowa a uniquely great place to live. For any Iowan saving for education after high school, though, three numbers make hearts thrill: 529.
While it only makes sense to celebrate the 529 Savings Plan on the date that shares its name, 529 plans benefit Iowans saving for education 365 days a year.
Named after the section of the IRS code that allows their use, Section 529 plans come in two flavors: savings accounts and prepaid tuition plans. 529 Savings plans allow for after-tax contributions to be made on behalf of a designated beneficiary, not just a child, which means a parent or family member going back to school can also benefit.
Contributions to 529 plans grow tax-deferred (think of it like a education-focused 401(K)) and can be withdrawn tax-free to pay for qualified educational expenses. Iowans get further tax advantages, as all earnings on a 529 account are fully exempt from Iowa state income tax. Iowa taxpayers can also deduct up to $3,163 in contributions per beneficiary account from their adjusted gross income.
A Section 529 savings plan is ideal for parents or grandparents who have some combination of the following factors:
- They would like to save more than $2,000 per year.
- They live in a state that offers a state income tax deduction for contributing to a Section 529 plan.
- They make enough money to be disqualified from using a Coverdell ESA.
- They have multiple children with the hope that all will attend college.
- They are starting their college planning late in their children’s lives.
- They are planning on saving large amounts towards college costs.
- They expect their children to attend expensive graduate programs.
- They want the freedom to reclaim the assets for any reason they choose.
- They would like to fund a loved one’s college, while significantly reducing the size of their estate.
And while a Iowa family’s 529 plan may be based in Iowa, money can be used for qualified expenses at any public or private institution, regardless of where you set up the account or where the beneficiary attends school. Out-of-state relatives can also invest in an Iowa plan regardless of where the parent or beneficiary lives. So if a grandparent lives in Florida, they can still fund their grandchild’s Iowa plan.
Iowa 529 Plans are great savings options for all families. Plans can be opened with a minimum of $25 and each additional contribution can be as little as $25 ($15 when contributing through an employer’s payroll deduction plan), deposited regularly or whenever convenient.
Iowans can set up an account, review a wide variety of investment choices and learn more about the details of a 529 Savings Plan at College Savings Iowa’s website, provided by the State Treasurer’s office.