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COLLEGE SAVINGS PLAN YEAR-END PLANNING

December 20, 2005

It's silver lining time.

Iowa has a personal tax system with high rates and byzantine complexity. Yet along with our workhouse gruel, we Iowans occasionally get a chocolate chip cookie. The College Savings Iowa tax deduction is one such tasty morsel.

IOWA BENEFITS

College Savings Iowa is a state-sponsored Section 529 college savings plan. It is a reasonably well-run plan offering low-cost Vanguard funds, but it has an additional attraction for Iowans: you may deduct up to $2,375 per donee, per year in contributions to college savings Iowa on your Iowa tax return. That means a married couple with two children can deduct $9,500 in 2005 CSI contributions.

If your child is in college already, it's not too late to get CSI benefits. You can qualify for the Iowa deduction simply by funneling your current tuition payments through CSI.

FEDERAL BENEFITS

While there is no federal deduction for contributions to Section 529 plans, the earnings accumulate tax-free and may be withdrawn tax-free to pay college costs.

There is also a special gift tax benefit for Section 529 plan contributions. You can take up to five years worth of gift tax exclusion - $55,000 - in a single year if the gift is to a Section 529 plan.

ACT NOW!

You have to make your CSI payments by December 31 to deduct them on your 2005 Iowa tax return. If you don't have an account yet, you may go online here to set one up.

This is an installment in our series on 2005 year-end tax planning.

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