Iowa treasurer announces Iowa 529 college plan updates

New law expands tax deduction, allows Roth IRA rollover

Iowa 529 plan Roby Smith Gov. Kim Reynolds college savings

Iowa 529 plans can help even more Iowa families save and prepare for college thanks to some historic updates to the savings plans by the Iowa Legislature.

In a news release Wednesday, May 8, Iowa Treasurer Roby Smith said the recent legislation increases the tax deduction amount up to $5,500 for contributions to Iowa’s two 529 plans. They are College Savings Iowa and Iadvisor 529 Plan. And it will enable IAble, Iowa’s Achieving a Better Life Experience (ABLE), plan. 

Iowa 529 plans
Gov. Kim Reynolds signs Iowa HF2667 into law, which expands Iowa’s tax deduction for 529 and ABLE savings accounts and allows rollovers from Iowa’s 529 account to a Roth IRA. CREDIT IOWA TREASURER ROBY SMITH

For 2023, the maximum tax payers could deduct was $3,785 per beneficiary. Without the change to the law, it would have been $4,028 per beneficiary in 2024, the according to the treasurer’s office.

“This exciting update is a great way to save for others while giving yourself a tax benefit as well,” said Mr. Smith, a Davenport Republican. 

Mr. Smith added “I’m thrilled to continue to help Iowans save for their loved one’s future expenses while also continuing to help you save on your own taxes.” 

In the release, Gov. Kim Reynolds commended Mr. Smith’s leadership. “Treasurer Smith’s efforts to increase tax deductions and provide greater flexibility with state plans will help incentivize college and retirement savings for Iowa families.” 

According to Ms. Reynolds, “Iowa is fast becoming one of the nation’s most tax-friendly states, so it makes good sense that all areas of state government consider how to further reduce the tax burden on hardworking Iowans.” 

Transfers get easier

In addition to the new tax deduction amount, Iowa’s 529 account owners now will be able to transfer up to a lifetime limit of $35,000 to a Roth IRA in the beneficiary’s name. This became effective on the federal level on Jan. 1, 2024. Iowa approved the change during this year’s legislative season to follow the same rules.

Before the legislation, it was not considered a “qualified distribution” in Iowa to transfer money into a Roth IRA, the treasurer’s office said. By conforming with the federal standards, it ensures that Iowans utilizing the 529 to Roth IRA transfer will not face state tax penalties.  

College Savings Iowa is the state’s direct-sold 529 plan. It is administered by Mr. Smith. It offers a low-cost, tax-free way to save for tuition, room and board, books, computers and other qualified education expenses at eligible education institutions.

“It’s an exciting time for the State’s 529 plans,” Mr. Smith said. “Serving Iowans with their savings goals, our programs continue to grow and get better and better each year.”

He added that the historic updates will open “the doors for more families to start saving.”

The new changes come after Mr. Smith’s recent announcement that fees are being reduced again for College Savings Iowa account holders. The reduction brings the asset-based fees of College Savings Iowa’s investment options down to 0.17%. That means account owners only have to pay $1.70 for every $1,000 invested. 

“There are many important expenses fighting for our attention these days, which is why investing in your children’s education with College Savings Iowa is an accomplishment worth celebrating,” Mr. Smith said in a May 1 news release announcing the fee reduction. “Now you can add even lower fees to your celebration! This exciting update helps keep more of your hard-earned savings in your account – right where it belongs.” 

For more information on programs from the Treasurer’s Office, visit Connect with the treasurer on Facebook, Instagram and X regarding all areas of the office.

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