Tax benefits for College Savings Iowa 529 Plan
We can help you save on taxes while you save for education.
Your College Savings Iowa 529 account assets grow deferred from federal and state income taxes.
You will not pay federal taxes on money withdrawn from your College Savings Iowa 529 account to pay for qualified education expenses.* Additionally, if you are an Iowa taxpayer, all withdrawals are free from state income taxes.
Tax deductions for Iowa taxpayers
Iowa taxpayers who are Participants can deduct up to $3,785 for 2023 (adjusted annually for inflation) of their contributions per Beneficiary, including rollovers, in determining their adjusted gross income for Iowa income tax purposes. This deduction applies to each Beneficiary account they own and contribute to. For example, married Participants who contribute to separate accounts on behalf of their two children can deduct up to $15,140 (4 x $3,785) in 2023. **
Note: Iowa taxpayers can contribute to their College Savings Iowa 529 accounts until the Iowa state income tax-filing deadline, which is generally April 30. For Example, Iowa taxpayers can deduct up to $3,522 in contributions from their adjusted gross income for 2022 up to the tax deadline of May 1, 2023.
Qualifying contributions are deducted on line 24, item "g" of your Iowa income tax return. Most tax software programs will ask for this information and correctly indicate the appropriate reason for the deduction.
Federal gift tax incentive
You can contribute up to $85,000 in a single year for each beneficiary ($170,000 for a married couple filing jointly) without incurring federal gift tax, provided you do not make any other gifts to that beneficiary for 5 years.***
Before taking advantage of this incentive, you should consult a qualified tax advisor.
Points to consider
Your state's plan may offer additional tax benefits
If you are a resident or taxpayer of another state, you should consider whether that state offers a 529 plan with tax advantages or benefits that are not available through College Savings Iowa. Other state benefits may include financial aid, scholarship funds, and protection from creditors. Be sure to weigh all the pros and cons of a particular plan before you enroll.
There is a recapture for rolling over your assets to another state's 529 plan
If you are an Iowa state taxpayer, a rollover of assets from your College Savings Iowa 529 account to a qualified 529 plan in another state is subject to the recapture of all previous Iowa state income tax deductions made during the life of the account.
Contributions are not deductible from federal income tax
You cannot deduct the contributions that you make to any 529 college savings plan from your federal income taxes.
Iowa Taxpayers can use College Savings Iowa 529 assets to pay K-12 tuition, certified apprenticeship expenses, and qualified education loans.
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.
Recent legislation allows rollovers from 529 plans to ABLE plans
Recent legislation allows rollovers from 529 plans to ABLE plans without federal tax consequences. For Iowa state income tax purposes, a rollover from College Savings Iowa but will also not entitle the taxpayer to a deduction to the extent that the rollover was previously deducted as a contribution to College Savings Iowa. College Savings Iowa 529 participants who are residents of other states should consult with a tax advisor about their state laws. Rollover amounts from a 529 account apply towards the overall limitation on amounts that can be contributed to an ABLE account within a taxable year. Any amount rolled over that is in excess of this limitation shall be includable in the gross income of the distributee. This provision applies only to distributions made no later than December 31, 2025.
For more information about the tax benefits offered by College Savings Iowa, refer to our Program Description.