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FAQs: Plan details

Overview
Investments
Financial aid
Taxes

Overview

What are 529 college savings plans?
Named for Section 529 of the Internal Revenue Code, 529 college savings plans help individuals and families save for college in a tax-advantaged way.

What is College Savings Iowa?
It's a 529 plan, a tax-advantaged program intended to help an individual or a family pay the costs of higher education. Although sponsored and administered by the Treasurer of the State of Iowa, the plan is available to all U.S. citizens and resident aliens with a valid Social Security or other taxpayer identification number.

Who is Vanguard?
Vanguard is one of the world's largest global investment management firms. Vanguard has worked with College Savings Iowa since its inception in 1998 and is committed to providing a low-cost, wide-ranging choice of investments to help College Savings Iowa participants accumulate the assets they need to send their children to college.

Who is Upromise Investment Advisors, LLC?
Upromise Investment Advisors, LLC, provides record administration to College Savings Iowa, and together with its affiliate, Upromise Investments, Inc., is a leading administrator of 529 college savings plans, dedicated to meeting the needs of its clients, their plans, and the families saving for college.

In addition, Upromise, Inc., offers the Upromise service®, which helps you save for college by giving you back a percentage of your eligible spending at hundreds of America's leading companies. Participants can join by registering credit cards and grocery cards to receive money back automatically. You can have all or a portion of those earnings (minimum of $25) transferred directly to your College Savings Iowa account from your Upromise account.

The Upromise service is an optional service offered by Upromise, Inc., and is separate from College Savings Iowa. Terms and conditions apply to the Upromise service. Participating companies, contribution levels, and terms and conditions are subject to change at any time without notice. Go to www.upromise.com to learn
more.

Why should I choose College Savings Iowa?
Some of the plan's major benefits are:

  • Low minimum investment of only $25.
  • Tax-deferred growth.
  • Federal and Iowa state income tax-free distributions for qualified higher-education expenses.*
  • State income tax deduction for Iowa taxpayers.**
  • Gift and estate tax benefits.
  • Low cost.
  • 14 unique investment options.
  • No potential loss of control over assets.
  • No sales charges, commissions, or annual fees.
  • Additional savings opportunities through Upromise.
  • Expert investment management by Vanguard.

* The earnings portion of nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
** If withdrawals are not qualified, the deductions must be added back to Iowa taxable income.

Do I have to use my savings at an Iowa college or university?
No. The money in your account may be used at any eligible higher-education institution in the United States and abroad that qualifies under federal guidelines. This includes most public and private colleges and universities, graduate and post-graduate schools, community colleges, and certain proprietary and vocational schools.

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Investments

What are my investment choices?
The plan offers 14 investment options (you may contribute to up to five options at a time):

  • 4 age-based savings tracks. We'll manage your investments for you by shifting your assets to more conservative allocations as the beneficiary nears the anticipated college enrollment date.
  • 10 individual portfolios. Choose from a variety of stock, bond, and balanced investment options in which the allocations remain constant within a specified range. Your assets will be invested in the same portfolios until you tell us otherwise. For complete details, see the Program Description.

Are the portfolios guaranteed?
Your returns are never guaranteed and your account value will fluctuate with market performance. As with any investment in securities, you can lose money by investing in College Savings Iowa. Keep in mind that the holding period for college investors is short (generally 5 to 20 years), and you should consider investing more conservatively as the time approaches for you to begin making withdrawals. Before you select an investment option, you should carefully consider your investment time horizon and the level of risk you wish to assume.

When can I change my investment option?
You can change the direction of your future contributions at any time. Under the federal rules that govern 529 plans, you can move money between portfolios within your account once per calendar year and when you change the beneficiary. At that time, you can opt into different portfolios or an age-based option.

If I'm invested in an age-based savings track, do I need to do anything as the beneficiary grows older?
Each track's investments will automatically change over time as your beneficiary ages, shifting automatically from more aggressive investments when the beneficiary is younger to more conservative investments as the beneficiary approaches college age. Your assets will be moved to the next portfolio in the track by the fifth business day of the month following the beneficiary's 6th, 11th, 16th, and 19th birthdays. You should monitor your investments over the years and make adjustments if it's appropriate.

Can I see a list and description of the portfolios' underlying mutual funds?
Yes. Refer to the Program Description, or refer to the Investments section of our website.

What if I'd like to allocate part of my investment to a fund or portfolio not listed here?
The 10 individual portfolios offered by College Savings Iowa have been selected specifically for the plan and are the only individual portfolios available.

Where do I find information on investment performance?
To obtain daily updates of the total returns performance figures, go to the Investments section of this website. Here's what you'll find:

  • Unit value change ($ and %).
  • Unit value 52-week high and low ($ and date).
  • Year-to-date total return.
  • Prior calendar quarter total return.
  • Cumulative total return since inception.
  • 1-, 3-, 5-, and 10-year average annualized total returns as of the most recent month-end, quarter-end, and since inception.

Do the investments have tracking symbols?
Financial publications and stock exchanges currently don't report 529 plan portfolio prices and performance information. Therefore, 529 plan portfolios don't have tracking symbols like those of individual mutual funds or securities. To track your investment in computer finance software, you'll need to manually update portfolio prices and enter transaction information if you buy or sell units. Transactions aren't offered in a downloadable format.

How is investment performance determined?
The returns displayed on the website reflect past performance and are net of the management fee. Keep in mind that you don't actually own shares in the underlying funds. Instead, you own units of College Savings Iowa, so the returns for a particular portfolio may vary from the returns of the underlying funds.

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Financial aid

What impact does a 529 plan have on eligibility for federal financial aid?
529 plan assets are counted at different rates for the Expected Family Contribution (EFC) in the FAFSA formula. As of May 2012, federal guidelines are as follows:

  • If the student is a dependent, a 529 plan account is considered the parent's asset (if the account owner is the parent of the dependent student). As a result, it will generally be counted at a rate of only 3% to 6% of its value for the EFC.
  • If the student isn't a dependent and is the account owner, the 529 plan account is treated as the student's asset and is generally factored into the EFC at the higher rate of 20%.
  • In other cases (such as with a grandparent), the account doesn't count as an asset for federal financial aid purposes. (However, a student may have to report distributions received from the account as income for these purposes.)

Note: Financial aid programs offered by educational institutions and other nonfederal sources may have their own guidelines for the treatment of 529 plan accounts. For complete information about financial aid eligibility, you should consult a financial aid professional and/or the state or educational institution offering a particular financial aid program, since rules and regulations often change.

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Taxes

What are the income tax benefits of College Savings Iowa?
Some of the plan's major tax benefits are:

  • Federal income tax-free. Earnings on your College Savings Iowa account grow tax-deferred and are free of federal income tax when used for qualified higher-education expenses. Qualified withdrawals include tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; room and board during any academic period the beneficiary is enrolled at least half-time; and certain expenses for a "special needs" student. (The earnings portion of nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.)
  • State income tax-free. For Iowa taxpayers, all earnings are exempt from Iowa state income tax. Other states may also offer tax breaks for withdrawals from College Savings Iowa. If you're not an Iowa taxpayer, consider whether your home state offers a 529 plan that provides its taxpayers with tax benefits not available to you through this plan. Be sure to weigh all the pros and cons of a particular plan before you choose it.
  • Iowa state income tax deductibility. Iowa taxpayers who are participants can deduct up to $3,098 (adjusted annually for inflation) in contributions per beneficiary account from their adjusted gross income for 2014. For example, married participants who each contribute to separate accounts on behalf of their two children can deduct up to $12,392 (that's 4 x $3,098) in 2014. Contributions are eligible for the deduction in the year in which they are postmarked or received online.*

Are contributions tax-deductible?
Contributions may be deductible for state income tax purposes, but not at the federal level. Iowa taxpayers who are participants can deduct up to $3,098 (adjusted annually for inflation) of their contributions per beneficiary account from their Iowa state income taxes. For example, married participants who each contributes to separate accounts on behalf of their two children can deduct up to $12,392 (4 x $3,098) in 2014. State tax treatment for residents of other states varies.*

What are the gift and estate tax benefits?
  • Federal gift tax. You can contribute up to $70,000 in a single year ($140,000 for a married couple filing jointly) for each beneficiary without incurring federal gift tax, provided you don't make any other gifts to that beneficiary for five years. For more information, consult your tax advisor or estate-planning attorney.
  • Federal estate tax. If you die with money remaining in your account, it won't be included in your estate for federal estate tax purposes. However, if you choose to take advantage of the federal gift tax averaging option mentioned above and you die within five years, a prorated portion of the contribution will be subject to estate tax. For more information, consult your tax advisor or estate-planning attorney.

* If withdrawals are not qualified, the deductions must be added back to Iowa taxable income.

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As of December 2, 2013, Upromise Investments, Inc. and Upromise Investment Advisors, LLC are no longer affiliated with Upromise, Inc., SLM Corporation, or its affiliates.

Investment returns are not guaranteed, and you could lose money by investing in the College Savings Iowa 529 Plan.

For more information about the College Savings Iowa 529 Plan, obtain a Program Description online or request one by calling 888-672-9116. Investment objectives, risks, charges, expenses, and other important information are included in the Program Description; read and consider it carefully before investing. Vanguard Marketing Corporation, Distributor.

If you are not an Iowa taxpayer, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.

College Savings Iowa is an Iowa trust sponsored by the Iowa State Treasurer's Office. The Treasurer of the State of Iowa sponsors and is responsible for overseeing the administration of the College Savings Iowa 529 Plan. The Vanguard Group, Inc., serves as Investment Manager and Vanguard Marketing Corporation, an affiliate of The Vanguard Group, Inc., assists the Treasurer with marketing and distributing the Plan. Upromise Investment Advisors, LLC, provides records administration services. The Plan's portfolios, although they invest in Vanguard mutual funds, are not mutual funds.

The Upromise service is an optional service offered by Upromise, Inc., and is separate from College Savings Iowa. Terms and conditions apply to the Upromise service. Participating companies, contribution levels, and terms and conditions are subject to change at any time without notice. Go to www.upromise.com to learn more.

College Savings Iowa and the College Savings Iowa logo are trademarks of the State of Iowa. The Upromise Investments logo is a registered service mark of Upromise Investments, Inc. Ugift and Upromise are registered service marks of Upromise, Inc. Vanguard and the ship logo are trademarks of The Vanguard Group, Inc.

© 2014 State of Iowa.