Changes come for 529 plans

By JOANNE FOX
joannef@scdiocese.org

Beginning this year, Iowans can save money contributing to an Iowa 529 plan and then using those funds to pay for K-12 tuition.

Prior to this year, these funds could only be used for college tuition and textbooks. The annual limit is $10,000 per beneficiary. Contributions to an Iowa 529 plan are state tax deductible.

The Iowa Tax Reform legislation signed into law in June contained provisions related to distributions from an Iowa 529. The tax provisions were retroactive to Jan. 1.

According to Trish Wilger, executive director of Iowa Alliance for Choice in Education, a qualified K-12 withdrawal can be sent directly to a K-12 institution or to the participant. Books and supplies are not deemed “qualified education expenses;” tuition is the only qualified education expense for K-12.

More good news comes with a charitable gift annuity, which involves a contract between a donor and a charity, whereby the donor transfers cash or property to the charity in exchange for a partial tax deduction and a lifetime stream of annual income from the charity.

Sharon R. Olerich, Carroll Kuemper Catholic School development director, supported the idea that a donor might prefer a charitable gift annuity over an outright donation to a nonprofit.

“Charitable gift annuities are gifts which produce income for the donor at very attractive rates for life,” she said. “Fixed payments with tax advantages can be a very rewarding outcome for your donors during their lifetime. Then, upon the death of the annuitant, the remaining assets go to support the mission of their local parish or school.”

Olerich reported donors may receive many benefits from this strategy.

“You have fixed payments for you and/or spouse for life without the worry of market changes,” she said. “You have partial tax-free payments with no fees. Also, there is an immediate income tax deduction when the annuity is established.”

A taxpayer gets to take advantage of the appreciated value of the donated securities, and one also gets to pay taxes at the lower capital gains rate.

On July 1, the charitable gift annuity rates were increased for the first time since 2012. Olerich described a charitable gift annuity as a “planned gift.”

“Therefore, when donors choose a charitable gift annuity at Kuemper, they become part of the Kuemper Eternal Knights Society – those visionary friends who have made the ultimate expression of their faith in Catholic education by remembering Kuemper in their estate plans,” she said.

“There is also the joy and satisfaction of giving back to Catholic education and/or your parish in planning a gift,” Olerich added.

Individuals interested in more information on any of these tax and/or charitable giving options, should contact a certified financial planner or a tax preparer.

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