Are 529 Contributions Tax Deductible in Iowa?

A 529 plan is a savings account designed to help families set aside funds for future education costs. While contributions are not deductible on a federal income tax return, some states provide a state tax deduction for their residents. Iowa offers a tax benefit for contributions to its designated education savings plan, allowing Iowa taxpayers to reduce their state taxable income.

Iowa’s State Tax Deduction for 529 Contributions

For the 2025 tax year, an Iowa taxpayer can deduct up to $5,800 in contributions per beneficiary from their Iowa state income. This amount is adjusted annually for inflation. For the 2024 tax year, the deduction limit was $5,500 per beneficiary.

This deduction is available to any Iowa taxpayer who makes a contribution, not just the designated account owner. This means grandparents, family members, or friends who are Iowa residents can also claim the deduction. There are no income limitations or phase-outs associated with this tax benefit, making it accessible to all Iowa taxpayers.

The per-beneficiary limit is an advantage for families with multiple children. A married couple can maximize their tax savings by each contributing to separate accounts for each child. For instance, if a couple has two children, each parent could contribute and deduct up to $5,800 per child, for a total potential deduction of $23,200 for the 2025 tax year.

Qualifying Contributions and Plans

To be eligible for the Iowa state tax deduction, contributions must be made to a specific plan. The deduction is available for contributions to the College Savings Iowa 529 Plan or the IAdvisor 529 Plan. Iowa taxpayers who contribute to a 529 plan sponsored by any other state are not permitted to claim this deduction on their Iowa income tax return.

The deduction applies to new money deposited into a qualifying Iowa 529 account, which includes funds rolled over from another state’s 529 plan.

Contributions for a specific tax year can be made up until the state’s income tax filing deadline, generally April 30 of the following year. For example, a contribution made before the filing deadline in 2026 can be applied to the 2025 tax year.

Claiming the Deduction and Recapture Provisions

To claim the deduction, taxpayers enter the total amount of qualifying contributions on their annual state income tax return. This reduces the taxpayer’s total state taxable income. Tax preparation software often prompts for this information, simplifying the filing process.

A recapture provision applies if funds are withdrawn for non-qualified expenses. If a taxpayer takes a distribution from a College Savings Iowa account for a purpose other than qualified education expenses, any portion of that withdrawal previously deducted from Iowa income must be added back to their income in the year the withdrawal is made.

For example, if a taxpayer deducted $5,800 in contributions and later withdrew that same $5,800 for a non-qualified reason, they would have to report an additional $5,800 of income on their Iowa tax return for that year. This rule also applies if funds are rolled over from an Iowa 529 plan to a non-Iowa 529 plan, as this action is treated as a non-qualified withdrawal.