Iowa Educational Savings Plans Trust

Tax Benefits

Allow your savings the potential to grow faster and work harder.

Tax-Deferred Earnings

The assets in your College Savings Iowa account grow deferred from federal and state income taxes. This means you are not paying annual taxes on the earnings while the funds are in the account, which provides the potential for additional growth of your investments when compared to a taxable account for the same period.

Tax-Free Withdrawals

You will not pay federal or state taxes on money withdrawn from your College Savings Iowa account to pay for qualified education expenses.1 If you are an Iowa taxpayer, all withdrawals are free from state income taxes.

Iowa Income Tax Deduction

If you are a Participant and also an Iowa taxpayer, you can deduct up to $5,500 of your contributions per Beneficiary account, including rollovers, from your Iowa income taxes in 2024. This number is adjusted annually for inflation, and you can contribute until the Iowa state income tax-filing deadline, which is generally April 30, for the prior year’s tax purposes. For example, Iowa taxpayers can deduct up to $3,785 in contributions from their adjusted gross income for 2023 up to the tax deadline of April 30, 2024.

Since the deduction applies to each Beneficiary account you own and contribute to, you can maximize the amount you can deduct by having accounts for multiple beneficiaries. For example, married Participants who contribute to separate accounts on behalf of their two children can deduct up to $22,000 (4 x $5,500) in 2024.

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. When you withdraw the funds, if it is not for a qualified education expense and you previously took a deduction, the amount of the deduction must be added back to Iowa taxable income.

Federal gift tax incentive

You can contribute up to $90,000 in a single year for each Beneficiary ($180,000 for a married couple filing jointly) without incurring a federal gift tax. The amount is prorated over five years; so, for example, a $30,000 contribution would use $6,000 of the current $18,000 annual gift tax exclusion each year for five years.

In the event the donor doesn't survive the 5-year period, a prorated amount will revert back to the donor's taxable estate.

529 plan rollovers to ABLE plans

You can roll over funds from your College Savings Iowa account to an ABLE plan, such as IAble, as long as your Beneficiary is the ABLE Account Owner or a “member of the family” of the ABLE Account Owner, as defined by Section 529. Keep in mind the rollover will count towards the ABLE Annual Contribution Limit, and this feature is currently only available until January 1, 2026. There are no federal tax consequences; however, you should consult your tax advisor for state tax implications. For more information about rollovers to IAble, refer to IAble’s Plan Disclosure Booklet.  

For more information about the tax benefits offered by College Savings Iowa, refer to our Program Description.

1The 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.

College Savings Iowa cannot provide individual tax advice. The rules around federal, state and local taxes are complex, and how they affect your personal situation can vary. If you have specific questions regarding taxes, you should consult a qualified tax advisor.

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