FAQs: Managing your account
- Using your 529 money
- How can I use the money in my account?
- Do I have to use my savings at an Iowa school?
- How do I know which educational institutions are eligible?
- Is paying off a student loan a qualified education expense?
- Who can contribute to my account?
- How can I contribute to my account?
- How can friends and family members use Ugift® to contribute to my account?
- If I choose to mail a check, when will my contribution be invested in College Savings Iowa?
- If I make a contribution by bank transfer, when will it be invested?
- If I set up recurring contributions (also known as an automatic investment plan, or AIP), when will my contributions be invested?
- What types of accounts can I use for recurring contributions or bank transfers?
- Can I set up recurring contributions or a bank transfer from a mutual fund?
- How much can I invest?
- Making withdrawals
- How soon can I begin making withdrawals after making a deposit?
- How do I make withdrawals from my account?
- Who can receive 529 account withdrawals?
- How long do withdrawals take?
- What tax forms will I receive when I make a withdrawal?
- Changing beneficiaries
- Can I change the account beneficiary?
- What happens if the student does not want to continue his or her education?
- Understanding financial aid
- What impact does a 529 plan have on eligibility for federal financial aid?
Using your 529 money
How can I use the money in my account?
Your account can be used for any purpose. However, for your withdrawals to be considered federally tax-free, the money must be used for the student's qualified education expenses at an eligible educational institution.*
Qualified education expenses for higher education include tuition; mandatory fees; books; required supplies; computers, including related hardware (e.g., printers) and software; internet access and related services; equipment required for enrollment or attendance; room and board during any academic period the student is enrolled at least half-time; and certain expenses for a special needs student.
Beginning in 2018, qualified education expenses for federal tax benefit purposes also include K-12 tuition at public, private or religious schools up to $10,000 per year per student in the aggregate across all qualified tuition programs for a designated student. 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. 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.
*The earnings portion of nonqualified withdrawals is subject to federal income tax and a 10% federal penalty tax, and may be subject to state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
Do I have to use my savings at an Iowa school?
For those saving for college: The money in your account may be used at any eligible higher-education institution in the United States or abroad that qualifies under federal guidelines. This includes most public and private colleges and universities, graduate and postgraduate schools, community colleges, and certain trade and vocational schools.
For those saving for K-12 education: Beginning in 2018, qualified education expenses for federal tax benefit purposes also include K-12 tuition at public, private or religious schools. Please note, though, there is a state tax exception. 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.
How do I know which educational institutions are eligible?
If a postsecondary school has been assigned a federal school code by the Department of Education, then it is an eligible institution under Section 529.
For Iowa taxpayers, if a K-12 school in the state of Iowa 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, it is an eligible institution under section 529.
Is paying off a student loan a qualified education expense?
Yes. Payments paid as principal or interest on any qualified education loan of the beneficiary or a sibling of the beneficiary is a qualified withdrawal, provided 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.
Who can contribute to my account?
Anyone can contribute, not just the participant. Contributions by check must be made payable to "College Savings Iowa" and include your account number. (If you are not the participant, make sure you have the correct account number for the student.)
You will also need to download and complete an Additional Purchase Form and send it with your check.
Note: Only participants who are Iowa taxpayers are eligible for the State of Iowa income tax deduction, if applicable, on contributions they make to their accounts.
How can I contribute to my account?
You can contribute by:
- Electronic bank transfer (one-time contributions in varying amounts from your checking or savings account).
- Recurring contributions (also known as an automatic investment plan, or AIP), which are set amounts moved from your bank account on a regular basis.
- Payroll deduction (through participating employers only).
- Check (made payable to "College Savings Iowa").
- Rollover from another 529 plan.
- Transfer from an education savings account or a U.S. savings bond.
- Transfer from a Uniform Gifts/Transfers to Minors Act (UGMA/UTMA) account. (For more information, see "Understanding UGMA/UTMA accounts" on the FAQs: Getting started page.)
We do not accept contributions made in cash or by credit card, third-party personal checks over $10,000, foreign checks not in U.S. dollars, checks dated more than 180 days prior to receipt or postdated checks
We also do not accept noncash assets, such as mutual fund shares or other securities.
Note: Contact your tax advisor to find out the tax implications of the various contribution methods.
How can friends and family members use Ugift® to contribute to my account?
Once you have signed up with Ugift you can link your Ugift account to your College Savings Iowa 529 account. You can then invite friends and family to contribute to your account by sharing a special Ugift code on Twitter or by email. Gift givers can use that code to make online contributions to Ugift, which will be transferred on a regular basis to your College Savings Iowa account.
Ugift also provides printable gift coupons that you can distribute in person or by mail. The coupons are coded so that when they are mailed in with contribution checks, the money will be deposited into the correct account.
*Ugift is a registered service mark of Ascensus Broker Dealer Services, Inc.
If I choose to mail a check, when will my contribution be invested in College Savings Iowa?
If your check and instructions are received in good order on a business day when the New York Stock Exchange (NYSE) is open and prior to its close (generally 4 p.m., Eastern time, Monday through Friday), your contribution will be processed with that day's trade date.
If your check is received after the close of the NYSE, it will be processed using a trade date of the following business day.
Note: All checks should be made payable to "College Savings Iowa".
If I make a contribution by bank transfer, when will it be invested?
If your bank transfer is received in good order on a business day when the New York Stock Exchange (NYSE) is open, and prior to its close (generally 4 p.m., Eastern time, Monday through Friday), you will receive that day's trade date. Your purchase will be made at that day's closing price for units of the applicable portfolio. Your bank account will be debited on the business day following the trade date.
If your bank transfer is received in good after the close of the NYSE, you will receive a trade date of the next business day. Your bank account will be debited on the business day following the trade date (i.e., the second business day after your request).
If I set up recurring contributions (also known as an automatic investment plan, or AIP), when will my contributions be invested?
Your bank account will be debited on the day you designate, provided that day is a regular business day. If the day falls on a weekend or a holiday, the debit will occur on the next business day. Your College Savings Iowa 529 account will be credited on the business day preceding the day the bank debit occurs.
The first recurring contribution debit must be at least 3 days from the date your request is received. Quarterly recurring contributions will be made every 3 months on the date you indicate, not by calendar quarter.
If you do not indicate a date, the recurring contribution will be made on the 20th of the month.
What types of accounts can I use for recurring contributions or bank transfers?
You can use a personal checking or savings account held with a U.S. financial institution that is a member of the Automated Clearing House (ACH) network.
You cannot use a passbook savings account for recurring contributions or bank transfers. Generally, money market accounts are not eligible either.
Can I set up recurring contributions or a bank transfer from a mutual fund?
No. Most mutual fund companies are not members of the ACH network.
How much can I invest?
You can invest until the combined balances of all accounts held in a 529 plan sponsored by the State of Iowa for the same beneficiary (student) reach $420,000. Earnings (but not contributions) may cause the total account value to exceed this amount.
Note: The maximum, which is adjusted periodically, may or may not cover all of your student's qualified higher-education expenses
How soon can I begin making withdrawals after making a deposit?
You may make withdrawals at any time, taking into consideration the following guidelines:
- If you make a contribution by check, recurring contribution or electronic bank transfer, the money will be available for withdrawal after 7 business days.
- If you request a withdrawal by check at the same time you change your mailing address, the withdrawal will be held for 9 business days.
- If you add or change bank information, you need to allow 15 days for withdrawals by electronic bank transfer.
How do I make withdrawals from my account?
Withdrawals can be requested online by logging on to your account, by phone or by submitting a Withdrawal Request Form.
Who can receive 529 account withdrawals?
Qualified withdrawals can be sent directly to:
- An eligible educational institution.
- A K-12 instituion.
- The participant.
- The student for withdrawals for higher education. (Payments cannot be sent directly to the student for withdrawals for K-12 tuition).
Nonqualified withdrawals can be sent to the:
How long do withdrawals take?
If your withdrawal request is received in good order on a business day when the New York Stock Exchange (NYSE) is open and prior to its close (generally 4 p.m., Eastern time, Monday through Friday), it will be processed with that day's trade date. Withdrawals received in good order after the close of the NYSE will receive the next business day's trade date.
If you request the proceeds by check, it will typically be mailed to the recipient within 3 business days after the trade date. Allow 10 business days for the check to be received.
If you request that the proceeds be sent electronically, you will need to have banking information set up 15 days prior to making the request.
Note: No matter how you receive the proceeds, allow extra time during periods of heavy volume, as crediting the student's account may be delayed.
Also keep in mind that during periods of market volatility and at year-end, withdrawal requests may take up to 5 business days to process.
What tax forms will I receive when I make a withdrawal?
College Savings Iowa will generate a Form 1099-Q in January of the calendar year following a year in which there was a withdrawal from the account. The recipient of the 1099-Q will be either the participant or the student, depending on who received the proceeds of the withdrawal.
Withdrawals sent to the participant will be reported under the participant's Social Security number. Withdrawals sent to the student or to an educational institution will be reported under the student's Social Security number, per IRS guidelines.
Can I change the account beneficiary?
You can change the beneficiary (student) on your account at any time, provided that the new student is an eligible family member of the original one. Below is a list of relatives who, by law, are considered to be suitable substitutes:
- Brother, sister, stepbrother or stepsister.
- Son, daughter, stepson or stepdaughter (or their descendants).
- Father or mother (or an ancestor of either).
- Stepfather or stepmother.
- Son or daughter of a brother or sister.
- Brother or sister of the father or mother.
- Son-in-law, daughter-in-law, brother-in-law, sister-in-law, father-in-law or mother-in-law.
- Spouse, or the spouse of any individual previously listed.
- First cousin.
You can also find this list of eligible beneficiaries in the Program Description.
What happens if the student does not want to continue his or her education?
If that is the case, you have 3 options:
Stay invested. You can leave the money in the account in case the student decides to attend school later. There is no age limit for using the money.
Change the beneficiary. You can change the beneficiary (student) on your account at any time, provided that the new student is an eligible family member of the original one.
To see the list of eligible family members, refer to "Can I change the account beneficiary?" above.
Withdraw the money for other uses. A 10% federal penalty tax on earnings will apply if you withdraw money for any reason other than to pay qualified higher-education expenses. Exceptions to this penalty include a withdrawal made because the student:
- Has died or become disabled.
- Received a scholarship, to the extent the withdrawal amount does not exceed the scholarship amount.
Has enrolled in an eligible U.S. military academy, to the extent that the amount of the withdrawal does not exceed the value of the education. Eligible academies include the U.S. Military Academy, Naval Academy, Air Force Academy, Coast Guard Academy and Merchant Marine Academy.
Additionally, any accumulated earnings that are withdrawn from your account must be reported on the recipient's income tax return for the year in which they are distributed, and you may owe federal, state and local income taxes.
Contact your tax advisor to determine how to report a nonqualified withdrawal.
Understanding 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 Free Application for Federal Student Aid (FAFSA) formula. The federal guidelines are as follows:
- If the student is a dependent, a 529 plan account is considered the parent's asset (if the participant is the parent of the dependent student). As a result, it will generally be counted at a rate of up to 5.64% of its value for the EFC.
- If the student is not a dependent and is the participant, 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 does not 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 with a financial aid professional and/or the state or educational institution offering a particular financial aid program, since rules and regulations often change.