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An Iowa 529 is one of the most popular and tax-efficient ways that grandparents can set money aside for future college expenses for their grandchildren.
529s will continue to offer great benefits like tax-deferred growth on investments and tax-free growth for future qualified education expenses. However there is a new change in Iowa’s tax laws that applies to grandparents in Iowa that makes 2022 the final chance for many to receive a tax deduction for their 529 contributions.
You may already know about the tax advantages of saving to an Iowa 529 plan. Not only do you get tax free growth for your grandkids for when they have their own education expenses later, you can also receive a tax deduction for your contributions and save on your own taxes right now.
That deduction is $3,522 per filer – so a married couple can get up to $7,044 in Iowa state tax deductions today by maximizing your contribution in 2022.
But what you may not know is that Iowa’s tax laws are drastically changing starting in 2023.
With the upcoming change to Iowa’s tax laws, “retirement income” will no longer be taxed. This applies to IRAs, 401(k)s, Pensions, and Social Security.
For many retirees in Iowa, that means they will have little to no taxable income in the state beginning next year. In addition to that, the income tax rates are being reduced from today’s 8.53%.
This means that for many Iowa grandparents, they may receive little to no tax deduction on their Iowa state taxes for 529 contributions in future years.
All this means that contributing to a 529 college savings account in 2022 provides you the best bang for your buck and that you should take full advantage of maximizing your Iowa 529 contributions for grandchildren this year. You will get the largest deduction, and your contribution will have more time to grow.
Please reach out to Arnold and Mote Wealth Management if you need help using your retirement savings to create a college savings plan for your family: