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CSI - NO, NOT THE TV SHOW

December 22, 2007

If you are an Iowan with college costs in your future, or even in your present, the College Savings Iowa Section 529 plan might be a good place to make a year-end tax planning move.

Section 529 plans allow you to put away money in an IRA-like account where the earnings are tax-free, and permanently tax exempt if used for college costs. There is no federal deduction for Section 529 contributions, but you can 2007 deduct contributions to College Savings Iowa on your Iowa 1040, up to $2,595 per donor, per donee. That means a married couple with two children can deduct up to $10,380 in CSI contributions. For a top-bracket Iowan, this works like a 6+% subsidy for making the investment.

You can contribute more than $2,595, but only that much is deductible.

If you have students in college already, you can contribute to the plan and use it to pay the tuition - in effect giving you a deduction for part of the annual tuition.

College Savings Iowa uses low-cost Vanguard "Life Cycle" funds, which helps keep your college savings from being eaten up by broker and mutual fund fees. CSI also has individual portfolios, if you want to try to outsmart the market.

To get your Iowa deduction, make sure you postmark your 2007 contribution by 12/31. You can enroll in CSI online here.

Remember, Section 529 plan gifts count towards the $12,000 annual gift tax exclusion, so keep that in mind if you want to maximize your use of annual gift tax exclustions.

This is another installment in our daily series of year-end planning posts.

Tags: year-end tax planning.