In Iowa, College Savings Plans Can’t Yet Be Used for K-12

BY STEVE DINNEN

As of Jan. 1, the new federal tax law allows college savings plans to be used for K-12 education expenses—a pretty sweet deal for people with these plans who have schoolchildren and want to draw as much as $10,000 yearly to fund private school costs (public, too). 

But not in Iowa. Not yet.

In a phone call with state Treasurer Mike Fitzgerald, he explained that Iowa’s law regarding these investment plans isn’t linked to federal law. 

“Our legal counsel doesn’t think that’s a qualified expense,” Fitzgerald said of using money invested with College Savings Iowa, a state-sponsored investment program, for anything beyond higher education expenses.

Parents and grandparents have flocked to College Savings Iowa, investing some $5 billion in mutual funds managed by Vanguard. Iowa residents who participate receive a credit on state taxes for much of their contribution, and earnings are withdrawn free of taxes at both state and federal levels.

Fitzgerald has notified Gov. Kim Reynolds of this disconnect. He said it will be up to lawmakers to decide whether to change the program to extend it to K-12. He also said that state tax credits on this change could amount to as much as $4.5 million, just as the state scrambles to cover a budget shortfall.