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- When the money is withdrawn, it’s tax-free as long as used for college expenses.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.