This year is an exciting one for Iowa 529 plan owners. With some new updates and changes based on recent legislation, it is important to understand the logistics and different options you have with your account.
What is a 529 plan?
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future educational costs. This plan is designed for individuals who want to save for future educational expenses, typically parents or grandparents, looking to fund the education of a child or grandchild. However, anyone can open and contribute to a 529 plan, including other relatives or friends, to help a designated beneficiary save for educational costs. Contributions to a 529 plan grow tax-deferred and withdrawals are tax-free when used for qualified education costs. The account owner controls the plan, makes contributions, and can change the beneficiary, if needed.
Recent Updates:
1. Increased Tax Deductions
One major update is the newly increased tax deduction. Account owners can now deduct $5,500 per beneficiary on their state of Iowa tax return. For example, if a married couple with 2 children wanted to maximize their deductions, each parent could open an account for each child and deduct $5,500 per child ($11,000 total per child) for a grand total of $22,000 in total household deductions.
2. Roth IRA Rollovers
Many ask what they can do with their unused funds from their 529 plan. If this is the case for you, you may be able to roll the funds over to the Beneficiary's Roth IRA without federal or state penalties. This is a great option for those seeking to continue supporting their beneficiaries’ post-education, however there are many parameters to be aware of. Therefore, contact your advisors today to further the conversation.
We hope you feel more equipped with an understanding of your 529 plan and the options available to you as you plan for the educational futures of your loved ones.
Source: Roby Smith, College Savings Iowa
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
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