Outside state 529 Transfer to Iowa 529

[Garbenzo]

I am an Iowa resident. I started a 529 for 2 of my kids in an outside state because I didn't do enough research initially. Eventually I realized that I can only get the tax deduction if I use the Iowa 529s. So in 2023 I transferred them from the other state (New Hampshire or one of the other "universal" ones. Can't remember off the top of my head), where I never claimed any deductions on them, to Iowa. I also continued contributing to them. Can I claim both the transferred amounts now and the amounts I have been contributing after the transfer or just what I contributed in 2023?

[AnnetteB6]

You can deduct the contributions that you made directly to the Iowa 529 plan during 2023 on your 2023 Iowa tax return, up to the $3785 per taxpayer per beneficiary limit.

Although a specific reference was not found addressing whether transferred amounts from other 529 plans may also be deducted, it is unlikely to be allowed.  There would be the potential for double-dipping  from two states (the original plan where you made the contribution and the state where you transferred the funds) if it were allowed.

[Garbenzo]

I never claimed it when it was in the other state because I couldn't. I can only claim it at the state level and it was not in the correct state. Shouldn't be double dipping at least, still don't know if it is right or wrong. I actually reached out to the state of Iowa as well to see what they say.

[Garbenzo · Accepted solution]

Here is the answer I got from the State of Iowa:

The following is from the 2023 IA1040 expanded instructions for schedule 1, line 19.

College Savings Iowa or Iowa Advisor 529 Education Savings Plans

If you or your spouse participate in the College Savings Iowa 529 Plan (Iowa Educational Savings Plan Trust) or the Iowa Advisor 529 Plan, each may deduct an amount contributed not to exceed $3,785 per beneficiary. This deduction is only available for contributions to Iowa 529 plans.

You must be the "participant" in the Iowa 529 plan in order to deduct your contributions. If you are not the "participant" in the Iowa 529 plan, you may not deduct your contributions to that plan.

Example: Adam and Tara have 2 children; Charlie and Ruth. Adam opens two 529 accounts – one for Charlie and one for Ruth. Tara also opens two 529 accounts one for Charlie and one for Ruth. Both Adam and Tara can take up to $3,785 per child’s account. Adam and Tara each are eligible for a deduction of up to $7,570. Adam and Tara’s total potential deduction amount is $15,140.

Only contributions to these two Iowa 529 plans qualify for a deduction on the Iowa return; however, a rollover from another state's 529 plan to one of the Iowa plans qualifies toward the deduction for Iowa income tax. If you received a refund of any qualified higher education expenses from an eligible educational institution and recontributed the refund amount consistent with Iowa Code section 422.7(22)(c)(1)(f)(i), you may not deduct the recontribution amount when calculating your Iowa taxable income and the recontribution amount will not be considered when determining whether you have met the annual deduction cap.

Be sure you have properly shown these contributions as a deduction for one of these plans. Most computer software programs will ask for this information and correctly indicate the appropriate reason for the deduction.
Individuals making a contribution on or before the Iowa income tax return filing deadline (April 30 for calendar year tax filers), excluding extensions, can elect to have that contribution treated as though it was made on the last day of the preceding calendar year, which allows them to claim the income tax deduction for the most recently completed tax year.