---
title: Check All the Boxes When Saving for College
description: A 529 Plan is a college savings plan that is state sponsored, wherein the funds can be used for tuition, books, and other education-related expenses
---

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# [Check All the Boxes When Saving for College](https://www.onlyworkforyou.com/resources/blog/check-all-the-boxes-when-saving-for-college-1)

 Written by [Matt Roberts MFM CFP® CAP® Chief Planning Officer](https://www.onlyworkforyou.com/resources/blog/author/matt-roberts-mfm-cfp-cap-chief-planning-officer) | Sep 19, 2022 4:00:00 AM

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When the funds are withdrawn for eligible expenses, the distributions are free of taxation. If the funds are withdrawn for an ineligible purpose, a 10% federal tax penalty is applied, as well as state tax.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](https://www.kiplinger.com/personal-finance/careers/college/605082/grandparents-now-is-the-time-to-contribute-to-your#:~:text=The%20new%20rules%2C%20effective%20for,detrimental%20impact%20on%20aid%20eligibility.&text=But%20grandparents%20can%20take%20advantage%20of%20the%20new%20529%20rules%20now), “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](https://www.collegesavingsiowa.com/).

[View full post](https://www.onlyworkforyou.com/resources/blog/check-all-the-boxes-when-saving-for-college-1)

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