Iowa treasurer proposes raising cap on contributions to state’s college savings program

DES MOINES — Iowans using a state program to save for college would be able to deposit more money into the program each year under a proposal being considered by the state treasurer.

Iowa State Treasurer Roby Smith, who was elected to the office in 2022, said he plans to propose raising the annual cap on what Iowans can contribute to a College Savings Iowa 529 Plan.

Such a change would require legislative action; Smith said he plans to work with lawmakers on a proposal.

Currently, Iowans can contribute $3,785 annually to the program. That number is indexed to inflation.

However, Smith said, that annual limit should be raised because the cost of college has outpaced inflation.

In 2000, two years after College Savings Iowa was created, the average cost of college was $8,653 for a four-year public college and $21,856 for a four-year private school; in 2020, those averages were $21,878 for a public school and $47,961 for a private college, according to National Center for Education Statistics compiled by the Education Data Initiative.

“The cost to go to college has been more than what the inflation rate is. So it’s time that we need to come in and revisit that amount,” Smith said.

State-run 529 programs like College Savings Iowa are popular because earnings grow federally tax-deferred, and withdrawals are federal tax free. In Iowa, withdrawals also are free from state income taxes, and there is a state tax deduction for program participants.

The funds can be used on tuition, books and other qualified expenses at two- and four-year colleges, postsecondary trade and vocation schools, certified apprenticeship programs, and more.

College Savings Iowa has more than 283,000 accounts with more than $5.5 billion in total assets, according to the treasurer’s office.

All 50 states have 529 plans, according to the federal Securities and Exchange Commission.

Smith said he has not yet determined an exact number for the new annual contribution threshold he plans to propose. He said he will discuss the proposal with state lawmakers and expects to see a proposed bill eligible for consideration by the Iowa Legislature when it convenes its regular session in January.

“Whatever number the legislature decides on, then we’re going to go from there and (continue) to index that (to inflation) in the future to help Iowans save more money,” Smith said. “And they can save it tax free for their kids to go to college and make a better life for themselves.”

Information on how to create a plan can be found on the program’s website, collegesavingsiowa.com.

Comments: (515) 355-1300, erin.murphy@thegazette.com