• Check All the Boxes When Saving for College

    by Admin | December 1, 2022

    March 13, 2017

    Are you looking for a way to support your child or grandchild in pursuit of further education?  Are you seeking an immediate tax deduction as well as tax-deferred growth on your contributions?  Do you also want flexibility in your investment options and to have them available at low cost?  A 529 Plan checks all of those boxes!

    A 529 Plan is a college savings plan that is sponsored by a state, wherein the funds can be used for tuition, books, and other education-related expenses at most accredited colleges and universities, vocational-tech schools, and some foreign institutions.

    Any US resident (18 and older) may contribute to a 529 plan.  The earnings grow free of federal taxation and, in the state of Iowa, you also receive a state tax deduction (in 2017, up to $3,239 per beneficiary).  When the funds are withdrawn for eligible expenses the distributions are free of taxation.  If the funds are withdrawn for an ineligible purpose a 10% federal tax penalty is applied, as well as state tax.

    The account owner/contributor may also change the beneficiary.  If one child goes to a more expensive school the owner can change the beneficiary to direct more funds to the child with larger college expenses.

    Many 529 programs also exhibit very low and reasonable fees with many investment options available.  For example, the College Savings Iowa program utilizes investments through Vanguard and enables participants to select an age-based investment or individual allocations.  The cost for the Iowa program is just 0.20% per year. 

    Here are some other Iowa program highlights:

    • You may open an account for anyone: child, grandchild, friend, yourself
    • The flexible beneficiary arrangements enable you to direct funds to another individual who may have a greater need; you can even get the money back (with taxation and penalty) if necessary
    • You can start small, investing as little as $25
    • Contributions are easily made through electronic bank transfer, an automated investment plan, check, payroll deduction (if available from your employer), and transfer from another college savings plan
    • Tax benefits galore! 
    • Assets grow deferred from taxation and are never taxed if used for qualified expenses.
    • Iowa tax deduction of up to $3,239 per beneficiary (you can contribute until the Iowa state income tax filing deadline).
    • You may contribute up to $70,000 in one year ($140,000 for a married couple) without incurring any federal gift tax – provided you don’t make other gifts to that beneficiary for five years.
    • See your tax professional to ensure that these benefits apply in your situation.
    • Diverse investment options at a low expense

    If you want further information on how you can plan for college expenses through use of a 529 plan, you may contact us or visit the College Savings Iowa website.

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