By Michael Fitzgerald, Iowa State Treasurer and administrator of Iowa’s 529 College Savings Programs
September 8, 2020
Saving for the future education of our children is a full family affair, and everyone plays an incredibly important role when it comes to helping them achieve their dreams. As I’ve often said, it really does take a village to raise a child. Grandparents play an important role in many children’s lives. From reading to playing, they help foster children’s imaginations and dreams. With a 529 plan, grandparents also have an opportunity to help them reach their educational dreams by helping them save.
As Iowa’s State Treasurer and a grandparent myself, I get to experience saving for my grandchildren’s future education from both sides — administrator of Iowa’s 529 plans and a program consumer. Although my children can have accounts for those special kids, I have the ability to open my own accounts as a grandparent. I enjoy watching their education fund grow alongside them. In addition, I appreciate the tax incentives as well as maintaining control over the accounts.
Grandparents often ask me if they need to open their 529 account in the same state as their children that live out of state. The answer is, they get to select the 529 plan that best fits their needs! No matter where your children or grandchildren live, it is usually best to look at your own state’s 529 plans to evaluate the tax benefits you could receive as a resident. 
For example, Iowa taxpayers contributing to the College Savings Iowa 529 plan can deduct up to $3,439 per beneficiary from their 2020 state taxes.* So there may be an advantage for an Iowa grandparent to invest in Iowa’s plan, even if the grandkids live in Colorado.
However, you are not restricted to your own state and can open an account with almost any 529 plan. When the time comes, you can withdraw funds and pay for qualified expenses like tuition, room, board, books, supplies, computers and more at any qualified education institution around the country.** You can visit the College Savings Plans Network website to compare different state plans at CollegeSavings.org.
529 plans also offer benefits for grandparents that other savings options might not. The value of a 529 account is removed from your taxable estate, but as an account owner, you retain full control over the funds you contribute and earn. Plus, there’s no expiration date or time limit for when the funds need to be used and you can move the funds around between your grandkids. At any time, you can transfer ownership of the funds to your children or grandchildren.
Getting the whole family involved in saving for the future can be an important step to help our children and grandchildren reach their dreams. With great benefits for everyone, a 529 plan could be the perfect opportunity for grandparents to start saving today!
About the Author: Iowa State Treasurer Michael Fitzgerald is the past chair of the College Savings Plans Network and the administrator of Iowa’s 529 College Savings Programs including College Savings Iowa, with over $5.3 billion invested and more than $3.1 billion in qualified withdrawals.
* If withdrawals are not qualified, the deductions must be added back to Iowa taxable income. Adjusted annually for inflation.
**Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.