Today, we’re diving into a powerful tool to help you save for college — the 529 College Savings Plan. Whether you're a parent, grandparent, or just someone looking to help a loved one with higher education, this episode is packed with valuable insights. If you’re in Iowa, we’ll focus on the benefits specific to our state. But don’t worry — if you’re tuning in from another state, many of the benefits still apply. So, let’s jump in!
First, let’s start with the basics. A 529 College Savings Plan is a state-sponsored investment account that allows you to save for college expenses like tuition, room and board, books, and even computers. Here’s what makes it so great: your contributions grow tax-deferred, which means you don’t pay taxes on the growth while it’s invested. And when you withdraw the money to pay for qualified education expenses, it comes out tax-free.
Now, for all you Iowans tuning in, here’s one of the best parts: in 2025, contributions to a 529 plan are deductible on your state income taxes—up to $5,500 per account. So, for Iowa residents, this is a fantastic way to reduce your state tax bill while saving for your education goals. If you’re in another state, be sure to check your own state's rules, as many states also offer similar tax benefits — though they may vary in terms of deduction limits or credits.
And here’s something you might not know: if your child ends up with more money in their 529 account than they need, you have options. For example, unused funds can be withdrawn up to the amount of any scholarships received without penalties. That’s right — if your child gets a scholarship, you can take out that amount without worrying about paying extra taxes or fees.
You can also use leftover 529 funds to fund a Roth IRA for your child, which is a great way to get them started on saving for retirement early. You can also use up to $10,000 to pay off your child’s student loans — and that’s a lifetime limit per person. And if there’s still money left in the account, you can direct the funds to another qualified relative — like a sibling, niece, or nephew — to help them with their education expenses.
So, if your child doesn’t use all the funds, or if their educational journey changes, you don’t lose the money. There’s a lot of flexibility built into a 529 plan.
Another reason why 529 plans are so great is that you don’t have to start big. Many plans allow you to begin with as little as $25 or $50, which means anyone can start saving — even if you’re just getting started or working with a tight budget. As your child gets older and you can contribute more, the account grows, and that’s when the magic of tax-deferred growth really kicks in.
Let’s summarize: 529 College Savings Plans are a tax-advantaged way to save for higher education. In Iowa, you get the added benefit of a state tax deduction on contributions, up to $5,500 per account in 2025. Your earnings grow tax-deferred, and your withdrawals for qualified education expenses come out tax-free. Plus, if your child gets a scholarship or doesn’t use all the funds, you have a lot of flexibility to move the money around or even use it for other purposes like student loans or Roth IRA contributions.
So, if you haven’t started saving for college yet, now’s the perfect time to explore a 529 College Savings Plan. It’s a smart, flexible, and tax-efficient way to ensure your loved one has the funds they need for their education, while also giving you peace of mind.
If you have any questions or want to learn more about how a 529 plan can work for you and your family, don’t hesitate to reach out. For further information on this topic, we recommend contacting your Syverson Strege financial planner at (515) 225-6000 or visit us online.