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?

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,* qualified withdrawals are tax-free, and some states (like Iowa) have other tax benefits as well.**

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 higher-education expenses include tuition, books, room and board, computer hardware and software, internet access and related services and required supplies.

Beginning in 2018, qualified education expenses for federal tax benefit purposes include K-12 tuition at public, private or religious schools up to $10,000 per year student in the aggregate across all qualified tuition programs for a designated student. In additon, 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. 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.

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 religous institutions (tuition only).

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.

For students attending K-12 institutions, Iowa taxpayers can use the College Savings Iowa 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.

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 parents 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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