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The Iowa 529 Credit - Tax Benefits for Using the IA 529 Plan

Rules for Claiming the Iowa 529 Income Tax Deduction


Overview of the Iowa 529 Plan Income Tax Deduction:

Currently, Iowa residents contributing to an Iowa 529 plan receive a state income tax deduction of $2,685 per beneficiary. If an Iowa resident contributes on behalf of multiple beneficiaries (children), they are entitled to multiple deductions, up to the limit of $2,685 per child.

Even better, couples filing jointly may each claim the deduction separately, effectively doubling the amount joint taxpayers can contribute and still receive the deduction. For example, if a married couple has three children, each parent may deduct contributions of up to $2,685 per child, for a possible total deduction of $16,110 (3 children x $2,685 maximum deduction x 2 parents).

Value of the Iowa 529 Plan Tax Deduction:

Iowa residents trying to decide whether or not they should use an Iowa 529 plan versus other savings vehicles need to account for the potential tax savings of a state income tax deduction. Remember, residents do not receive an Iowa income tax deduction for contributing to any other state's Section 529 plan.

Considering that the top income tax bracket in Iowa is 8.98%, each $2,685 contribution to an Iowa 529 plan may save a taxpayer up to $241 at tax time. While this is attractive, it still may not offset the benefits of using other non-deductible accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Claiming the Iowa 529 Income Tax Deduction:

Claiming the Iowa 529 tax deduction requires completion of Iowa state Form 1040. The deduction is combined with other adjustments to income and listed on Line 24 of the form. The tax return must also be accompanied by a brief explanation of the expenses, including the amount deducted per child.

Reference and Documentation:

Additional information on the Iowa 529 tax deduction can be found on the Iowa Department of Revenue's website and the College Savings Iowa website.

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