• Check All the Boxes When Saving for College

    by Matt Roberts MFM CFP® CAP® Chief Planning Officer | September 19, 2022

    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 a 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 2022, up to $3,522 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    When the funds are withdrawn for eligible expenses, the distributions are free of taxation. If the funds are withdrawn for an ineligible purpose, a 10% federal tax penalty is applied, as well as state tax.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. For example, if one child goes to a more expensive school, the owner can change the beneficiary to direct more funds to the child with more college expenses. The cost for the Iowa program is just 0.18% per year. 

    There’s also good news for grandparents who own a 529 college savings plan for their grandchildren. With new changes to the FAFSA process, grandparents’ distributions from their 529 will no longer reduce your grandchild’s financial aid eligibility. According to a magazine article, “Under the old FAFSA rules, students were required to report distributions from grandparent-owned 529 savings plans as untaxed student income. The new rules, effective for the 2023-2024 school year will no longer count distributions from grandparent-owned 529 college savings plans as untaxed student income, and they will not have a detrimental impact on aid eligibility.”

    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.
    • Diverse investment options are available at a low expense.

    The Iowa tax benefits* are also attractive:

    • Assets grow deferred from taxation and are never taxed if used for qualified expenses.
    • You’ll receive an Iowa tax deduction of up to $3,522 per beneficiary (you can contribute until the Iowa state income tax filing deadline).
    • You may contribute up to $80,000 in one year ($160,000 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.

    If you want further information on how you can plan for college expenses through use of a 529 plan, call us at 515-225-6000 or visit the College Savings Iowa website.

    Matt Roberts MFM CFP® CAP® Chief Planning Officer
    Matt Roberts is the Chief Planning Officer at Syverson Strege and a CERTIFIED FINANCIAL PLANNER™ practitioner. He is committed to serving others to enrich and empower their lives. His primary focus is to ensure clients maximize what they desire from their money and reach their personal and financial goals. Matt also leads the firm’s Planning Committee which is responsible for the oversight of the financial process. He earned his B.S. in finance from Iowa State University and a Master of Financial Management (MFM) degree from Drake University.

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