529 basics

Wondering how a 529 plan can help you save for your child's future? First, you need to know the basics.

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Defining 529s

What is a 529 college savings plan account?

A 529 plan is a type of investment account you can use to save for qualified education expenses. 529 plans are usually sponsored by states.

Where does the name come from?

It comes from Section 529 of the Internal Revenue Code, which specifies the plan's tax advantages.

What makes these savings vehicles so powerful?

Tax savings. Your earnings grow federally tax-deferred,* and qualified withdrawals are tax free. Additionally, if you are an Iowa taxpayer, all withdrawals are free from state income taxes. There is also a state tax deduction for Iowa taxpayers.**

Owners and beneficiaries

Who can open a 529 plan account?

Just about anybody can open a 529 account—parents, grandparents, other relatives, friends. As an account owner, you will pick investments, choose a beneficiary, and determine how the money is used. If you are an Iowa taxpayer, you can also benefit from the state tax deduction.**

How much financial knowledge do I need to start investing in the plan?

There are options for every level of investor. Your investment choices will depend on how comfortable you are with risk and when you expect your student to need the money.

What is a beneficiary?

A beneficiary is the future student, or the person you open the account for. You can open an account for a child, grandchild, friend, or even yourself. The only rule is that the beneficiary must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer identification number.

What happens if the beneficiary does not want to continue his or her education?

In this situation, you have a couple of options. You can stay invested in case he or she decides to attend school later—there is no age limit on using the money. Or you can change the beneficiary to an eligible family member of the original beneficiary.

You can also withdraw the money for other uses. However, a 10% penalty tax on earnings (as well as federal and state income taxes) may apply if you withdraw the money to pay for nonqualified expenses.

Using the money

How can I use the money in a 529 account?

You can use it to pay for anything that is considered a qualified education expense.

Qualified withdrawals from your account can be used to pay for tuition, room and board (with limitations), books, supplies, fees and equipment required for enrollment or attendance at any eligible educational institution in the United States or abroad, as well as computers or certain peripheral equipment, certain computer software or internet access and related services that are to be used primarily by the Beneficiary during any of the years the Beneficiary is enrolled at an eligible educational institution.  

Qualified withdrawals can also be used for tuition expenses in connection with enrollment at an elementary or secondary public, private or religious school. Section 529 permits withdrawals from 529 college savings accounts up to an aggregate of $10,000 per year per student for tuition expenses in connection with enrollment at a K-12 Institution. In addition, Iowa taxpayers can use the College Savings Iowa 529 Plan assets to pay for K-12 tuition with no Iowa state tax consequences as long as the student attends an elementary or secondary school in the state of Iowa which is accredited under Iowa Code Section 256.11 and adheres to the provisions of the federal Civil Rights Act of 1964 and Iowa Code Chapter 216, or (ii) an elementary or secondary school located outside the state of Iowa that educates a Beneficiary who meets the definition of “children requiring special education” in Iowa Code Section 265B.2, if the elementary or secondary school is accredited under the laws of the state in which it is located and adhere to the Federal Civil Rights Act of 1964 and applicable state law analogous to Iowa Code Chapter 216, or (ii) an elementary or secondary school located outside the state of Iowa that educates a Beneficiary who meets the definition of “children requiring special education” in Iowa Code Section 265B.2, if the elementary or secondary school is accredited under the laws of the state in which it is located and adhere to the Federal Civil Rights Act of 1964 and applicable state law analogous to Iowa Code Chapter 216.. State tax treatment of K-12 withdrawals is determined by the state(s) where the taxpayer files state income tax. If you are not an Iowa taxpayer, please consult with a tax advisor.

Additionally, qualified withdrawals include (1) fees, books, supplies and equipment required for participation in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act, and (2) amounts paid as principal or interest on any qualified education loan of the beneficiary or a sibling of the beneficiary; provided that the total amount that may be used from all accounts for repayment of loans of a beneficiary may not exceed $10,000. You should consult your tax advisor for more information.

Can 529 accounts only be used to pay for college?

No. Your 529 account can be used to pay for qualified education expenses at any eligible educational institution, including:

  • Postsecondary trade and vocational schools.
  • 2- and 4-year colleges.
  • Postgraduate programs.
  • K-12 public, private or religious institutions (tuition only).
  • Certified apprenticeship programs.
  • Qualified education loans of the beneficiary or their sibling.

Does it matter what state the student's school is in?

With the exception of K-12 saving discussed below, though you will be investing in a 529 plan sponsored by the State of Iowa, the student can attend any eligible higher-education institution (including eligible trade and vocational schools) in the United States or abroad.

Iowa taxpayers can use College Savings Iowa assets to pay for up to $10,000 in K–12 tuition annually with no Iowa state tax consequences as long as the Beneficiary attends (i) an elementary or secondary school in the state of Iowa that is accredited under Iowa Code Section 256.11 and adheres to the provisions of the federal Civil Rights Act of 1964 and Iowa Code Chapter 216, or (ii) an elementary or secondary school located outside the state of Iowa that educates a Beneficiary who meets the definition of “children requiring special education” in Iowa Code Section 265B.2, if the elementary or secondary school is accredited under the laws of the state in which it is located and adhere to the Federal Civil Rights Act of 1964 and applicable state law analogous to Iowa Code Chapter 216.

Getting started

How much does it cost to start?

There are no fees to open a College Savings Iowa 529 Plan account. You just need an initial investment of at least $25 to get started.

How much can I invest?

529 account contribution limits are generally high—from $200,000 to $300,000 or more, depending on the state. For the College Savings Iowa 529 Plan, you can contribute up to $420,000 on behalf of one beneficiary. This amount includes all Iowa-sponsored 529 savings accounts held for the same beneficiary.

What if I am not ready to open a 529 yet?

We can see how you might feel that way—most families are pretty busy these days. But starting to save early can make a big difference, and, after you have completed your research, opening an account only takes about 10 minutes.

Need more information?

You can find more answers in our FAQs. Or you can call us at 888-672-9116 on business days from 8 a.m. to 9 p.m., Eastern time.

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