Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 302 - Determination of Net Income › Rule 701-302.53 - Deduction for Contributions by Taxpayers to the Iowa Educational Savings Plan Trust and Addition to Income for Refunds of Contributions Previously Deducted

Current through Register Vol. 47, No. 3, July 24, 2024
The Iowa educational savings plan trust was created so that
				  individuals and certain other qualified participants can contribute funds on
				  behalf of beneficiaries in accounts administered by the treasurer of state to
				  cover qualified education expenses of the beneficiaries. The Iowa educational
				  savings plan trust includes the college savings Iowa plan and the Iowa advisor
				  529 plan. The following subrules provide details on how individuals' net
				  incomes are affected by contributions to beneficiaries' accounts, interest and
				  any other earnings earned on beneficiaries' accounts, and refunds of
				  contributions which were previously deducted. Definitions and other information
				  about establishing college savings Iowa accounts may be found in rules
				  promulgated by the treasurer of state. See 781-Chapter 16.
(1)
Deduction from net income for
				contributions made to the Iowa educational savings plan trust on behalf of
				beneficiaries.
a. An individual
				referred to as a "participant" can claim a deduction on the Iowa individual
				income tax return for contributions made by that individual to the Iowa
				educational savings plan trust on behalf of a beneficiary.
b. For tax years beginning on or after
				January 1, 2015, if a participant makes a contribution to the Iowa educational
				savings plan trust on or after January 1, but on or before the deadline for
				filing an Iowa individual income tax return, excluding extensions, the
				participant may elect to have the deduction for the contribution apply to that
				participant's Iowa individual income taxes for the calendar year immediately
				preceding the year in which the contribution was made. Once a participant has
				elected to apply a contribution to the calendar year immediately preceding the
				year in which the contribution was made, the contribution is deemed to have
				been made on December 31 of that previous calendar year. Once the election has
				been made, the deduction for that contribution may only be applied in computing
				the taxpayer's Iowa net income for the calendar year immediately preceding the
				year in which the contribution was made. Contributions made on or after January
				1, but before the deadline for filing Iowa individual income taxes, that the
				participant elects to have applied to the immediately preceding calendar year
				shall count toward the maximum contribution that may be deducted for that
				previous year. See paragraph 40.53(1)
"c"
below.
EXAMPLE: An individual makes a contribution to her Iowa
				  educational savings plan account on April 5, 2018. The deadline for filing a
				  2017 Iowa income tax return is April 30, 2018. The individual elects to have
				  the contribution apply to her 2017 individual income taxes instead of her 2018
				  Iowa individual income taxes. The department of revenue will consider the
				  individual's contribution to have been made on December 31, 2017. The
				  individual may now claim a deduction for the contribution, up to the annual
				  maximum deduction, on her 2017 Iowa income taxes. However, because the
				  individual elected to have her contribution apply to her 2017 Iowa income
				  taxes, she cannot claim the deduction for the April 5, 2018, contribution on
				  her 2018 Iowa income tax return.
c. The deduction on the 1998 Iowa return
				cannot exceed $2,000 per beneficiary for contributions made in 1998 or the
				adjusted maximum annual amount for contributions made after 1998. Note that the
				maximum annual amount that can be deducted per beneficiary may be adjusted or
				increased to an amount greater than $2,000 for inflation on an annual basis.
				Rollover contributions from other states' educational savings plans will
				qualify for the deduction, subject to the maximum amount allowable. Starting
				with tax years beginning in the 2000 calendar year, a participant may
				contribute an amount on behalf of a beneficiary that is greater than $2,000,
				but may claim a deduction on the Iowa individual return of the lesser of the
				amount contributed or $2,000 as adjusted by inflation. For example, if a
				taxpayer made a $5,000 contribution on behalf of a beneficiary to the Iowa
				educational savings plan trust in 2000, the taxpayer may claim a deduction on
				the IA 1040 return for 2000 in the amount of $2,054, as this amount is $2,000
				as adjusted for inflation in effect for 2000.
EXAMPLE: An individual has ten grandchildren from the age of
				  six months to 12 years. In October 1998, the person became a participant in the
				  Iowa educational savings plan trust by making $2,000 contributions to the trust
				  on behalf of each of the ten grandchildren. When the participant filed the 1998
				  Iowa individual income tax return, the participant could claim a deduction on
				  the return for the $20,000 contributed to the Iowa educational savings plan
				  trust on behalf of the individual's ten grandchildren.