Iowa sponsors a direct-sold and an advisor-sold 529 college savings plan to help you save for your child’s future education. Both offer major tax advantages and various investment options. You can start investing in either one with a $25 deposit and contribute up to $420,000, a maximum limit that’s relatively high compared to plans nationwide. The direct-sold College Savings Iowa Plan has some of the lowest investment fees in the nation. And although fees are higher with the IAdvisor 529 Plan, you'd get the guidance of a qualified financial advisor who can guide you through every step of the college savings process right up until your child walks through the doors of his or her first college class.
|Plan Name||Program Type||How to Enroll||Fees|
|College Savings Iowa Read Review||College Savings Plan||Direct-Sold||0.20%|
|The IAdvisor 529 Plan Read Review||College Savings Plan||Advisor-Sold||0.99% - 2.48%|
College Savings Iowa
College Savings Iowa stands out for its low fees. The plan allows you to invest in a variety of portfolios and each has a total annual asset-based fee of 0.20%, which makes the Hawkeye State one of the most fee-friendly plans in the country. Your investment options include individual portfolios that invest in all major asset classes and age-based options that automatically change their asset allocation to take on less risk as your child gets closer to the college.
How Do I Enroll in College Savings Iowa?
You can open an account with the College Savings Iowa program online. The process should take only a few minutes if you’ve gathered the following information about yourself and your beneficiary:
- Social Security or tax identification numbers
- Address and basic contact information
- Your bank account number and routing number if making electronic contributions
How Much Does the Iowa 529 Plan Cost?
Iowa’s direct 529 plan charges some of the lowest fees we’ve encountered. Each portfolio in the plan charges a total annual asset-based fee of only 0.20%. The total combines a program management fee and estimated underlying fund expenses.
So if you invest $10,000 in a portfolio, your fees would amount to just $20 in one year—assuming a constant asset-based fee and a 5% annual rate of return.
Tax Benefits of Iowa’s Direct 529 Plan
When you contribute to the College Savings Iowa 529 Plan, your earnings grow tax-deferred. This means they won’t be subject to federal and state income tax as long as they are invested. So your savings can take advantage of compound interest. And your withdrawals will be tax-free too if you use the money for qualified higher education expenses such as tuition and books required for enrollment.
The plan is open to all U.S. citizens and resident aliens, but Iowa state taxpayers get additional benefits for opening an account with this plan. They may deduct up to $3,319 ($6,638 if married filing jointly) from their Iowa taxable income per account each year.
However, you’ll likely face tax consequences for taking money out of the 529 plan for anything other than qualified higher education expense. This is known as nonqualified withdrawal, and the earnings portion may be subject to federal, state and local income tax as well as a 10% penalty. You may also need to pay back any previously-claimed state income tax deductions. You should seek a professional tax advisor for information about how a nonqualified withdrawal may affect you based on your particular situation.
What Are My Investment Options?
College Savings Iowa offers various age-based and individual portfolios.
Age-based options automatically rebalance their asset allocation to become less risky as your child gets closer to college. So they may suit someone who wants to take a hands-off approach and leave the investing to the professionals. Generally, these funds focus on growth-oriented securities like stock funds when you open the account before switching to less risky options like bond funds. However, this plan lets you choose from one of four age-based portfolio tracks based on your risk level: conservative growth, moderate growth, growth and aggressive growth. So if you have a low risk tolerance, you may be interested in the conservative track. This option would entirely invest in generally safer securities like bond funds when your child turns 18. The aggressive growth option on the other hand would invest a decent amount of money in stock funds throughout the life of the investment. Stocks are typically considered more risky than bonds, but they could also have potential for strong growth.
You can also invest in one or more individual portfolios. Each invests in a single underlying mutual fund. If you’re not sure how you should build your portfolio, you can use our asset allocation calculator to see how investment mixes can break down based on different risk levels.
How Do I Withdraw Money from College Savings Iowa?
You can request a withdrawal by visiting your account online. You can direct the payments to yourself, your beneficiary or the educational institution your child is enrolled in. You can also fill out a paper withdrawal request form.
The IAdvisor 529 Plan
The IAdvisor 529 Plan is offered exclusively through Iowa financial advisors. With the help of a professional, you can invest in a range of portfolios with underlying funds that major financial services providers like Vanguard, Blackrock and J.P. Morgan manage. Your options include age-based portfolios and single-fund ones. In addition, 529 assets don't count toward an Iowa student’s eligibility for state financial aid.
How Do I Enroll in The IAdvisor 529 Plan?
You can open an account with the IAdvisor 529 Plan through a financial advisor, who can guide you through the enrollment and investment-selection process. When choosing a financial advisor, be sure to take a few points into consideration. Carefully evaluate the person’s qualifications, certifications and expertise. Advisors are held to different standards based on several factors such as certifications. For example, Registered Investment Advisors (RIAs) are registered with the federal Securities Exchange Commission (SEC) and they’re held to very high standards. They’re also fiduciaries, which means they have a legal obligation to work in a client’s best interests.
You should ask your advisor questions pertaining to his or her qualifications and areas of expertise.
How Much Does the Iowa Advisor-Sold 529 Plan Cost?
The cost of investing in this plan depends heavily on the portfolio option or options you choose as well as the share class. But because this is an advisor-sold 529 plan, you might face some fees not usually found in the direct plans in order to compensate advisors and others involved in running the plan. One example of these fees is a sales charge, which varies depending on share class.
If you purchase share class A units, for example, you’d face an initial sales charge deducted from each contribution. Class C units don’t have initial sales charges, but they come with deferred sales charges. These are typically triggered when you take money out the plan before a certain amount of time has elapsed. Sales charges may be reduced or waived based on several factors such as account balance. So it's best to speak to your advisor about which is the right portfolio option and share class you can comfortably afford while aiming for your personal college savings goals.
In addition, the IAdvisor 529 Plan charges a $25 annual account maintenance fee. As with the direct plan, each portfolio also charges a total annual asset-based fee. Across the board, the total annual asset-based fee can span from about 0.99% to 2.48%.
Below is more information on how fees break down based on share class.
- Maximum Initial Sales Charge: 4.75%
- Total Annual Asset-Based Fees: 0.99% - 1.80%
- Annual Account Maintenance Fee: $25
- Maximum Deferred Sales Charge: 1.00%
- Total Annual Asset-Based Fees: 1.77% - 2.48%
- Annual Account Maintenance Fee: $25
Tax Benefits of The IAdvisor 529 Plan
The advisor-sold Iowa 529 plan enjoys the same tax benefits as its direct-sold counterpart. So any account holder’s contributions would grow tax-exempt and money can be taken out of the plan tax-free as long as it’s used for qualified higher education expenses.
However, you should speak to your advisor about additional tax benefits that may appeal to you based on your circumstances. If you’re an affluent individual, for example, you may be concerned about triggering gift taxes as you’re contributing toward your child or children’s 529 plans. However, 529 college savings plans allow you to give money to students while avoiding gift taxes.
In addition, you should consult with your advisor about any type of withdrawal as non-qualified withdrawals can put you in some hot water. In some cases, you can get the 10% penalty waived. An advisor can also help you find alternatives to tapping into your child’s 529 plan should the need arise.
What Are My Investment Options?
The IAdvisor 529 Plan offers three different types of portfolios including single-fund portfolios that all invest in one mutual fund. Your advisor can help you tailor a personalized investment strategy utilizing multiple individual fund portfolios based on your unique risk tolerance and savings goals.
You can also invest in an age-based portfolio. But unlike the age-based portfolios in the direct plan, the advisor age-based portfolios follow a general trajectory of moving from growth-oriented investments to less risky funds as your child ages. There are no risk-specific track options. However, underlying funds in these portfolios offer exposure to various asset classes including stocks, bonds and real estate.
In addition, you can also invest in static options that invest in a variety of underlying mutual funds. These portfolios are based on different risk profiles which range from ultra conservative to aggressive.
How Do I Withdraw Money from Iowa’s Advisor-Guided 529 Plan?
You can request a withdrawal online or fill out a physical form. However, you should consult your advisor before making a request in order to address any potential tax consequences and make the most out of the distribution.
If you’re not sure where to find a professional, you can use our free SmartAdvisor matching tool. After answering some simple questions, the tool will link you to qualified financial advisors in your area based on your needs and financial goals. Some specialize in specific fields like helping families save for their children’s college education.