Higher tax deduction for Iowa’s tax-free 529 accounts

Governor Kim Reynolds signed a bill into law earlier in May that raises the maximum tax deduction for contributing to a “College Savings Iowa” account to 52-hundred dollars. That’s 22 percent higher than what was allowed this year. State Treasurer Roby Smith says the higher tax deduction also applies to contributions to I-ABLE accounts which cover expenses related to a disability.

So-called 529 plans allow for tax-free withdrawals.

Among the 43 states that collect income taxes, there are only nine other states that have a higher tax deduction than Iowa’s new 52-hundred dollar amount for tax year 2025.

Smith, in his second year as state treasurer, proposed the higher tax benefit for deposits in 529 plans.

According to the state treasurer’s office, there’s six BILLION dollars in over 285-thousand College Savings Iowa accounts today. There nearly 67-thousand tax-free 529 accounts for people with disabilities under Iowa’s Achieving a Better Life Experience or I-ABLE program.


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