Mutual fund investors know all about high “loads” for investing in popular funds. It would be nice to have a fund vehicle where you receive a load, rather than pay one.
Actually, there is one vehicle that works that way: Iowa’s “College Savings Iowa” Section 529 plan. Iowa law provides an “above the line” deduction for contributions up to $2,800 per donor, per donee. That means a married couple can deduct CSI contributions for each child of $5,600 on their Iowa return (there is no such deduction on the Federal 1040). For a top-bracket Iowan, the resulting tax savings are like getting a 6+% negative “load” on your investment.
The funds can be withdrawn free of Federal and Iowa tax for qualified higher education expenses, while accumulating income tax-free in the meantime.
Iowa invests through Vanguard “life-cycle” funds, which move to safer investmets as college age approaches — a feature I learned to appreciate this year as my son began college. His CSI accounts were unscathed by the 2008 market collapse.
If you want to get a 2009 CSI deduction, you need to get the funds paid before December 31. If you don’t have an account, you get the paperwork going at the CSI website.
This is another installment in our 2009 year-end tax planning series.

Tags: 529 plan, College Savings Iowa, Section 529, year-end tax planning

This entry was posted on Friday, December 11th, 2009 at 11:48 am and is filed under 2009 Year-end Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.