The term “529 Plan” is a generic name given to tax-advantaged savings accounts for college expenses.
529 plans are administered by states. In Iowa, it’s called “College Savings Iowa.”
Here’s how the taxes work on 529 plans:
- Money put into a 529 plan is not deductible for federal tax purposes, but….
- When the money is withdrawn, it’s tax-free as long as used for college expenses.
- States often allow a deduction for money put into a 529 plan. In Iowa, a taxpayer can deduct up to $3,163 per taxpayer per child (in 2015) on their Iowa tax return. This means a married couple could deduct up to $6,326 per child each year.
- Accounts can be set up for anyone. While 529 plans are often talked about as being something you set up for children, they can be set up for adults too — including yourself.
For more information, check out this Q&A page on the IRS website.
For more tax and accounting terms, visit my Glossary page on this site.
“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”