When a taxpayer receives a nonqualified withdrawal or distribution from a College Savings Iowa or Iowa Advisor 529 Education Savings Plan, any amount previously deducted on the Iowa return must generally be added back to income to the extent of the prior Iowa deduction.
Key Rules for Iowa 529 Plan Cancellation
- Non-Qualifying Withdrawals: Amounts received from nonqualified withdrawals or distributions must be added back to Iowa income to the extent they were previously deducted.
- Reversal of Deduction: The deduction taken on the IA 1040 for contributions to the 529 plan must be added back to taxable income if the funds are withdrawn for non-qualified purposes.
- Qualifying Transfers: Taxpayers who make a qualifying transfer from a 529 plan to a Roth IRA on or after January 1, 2024, are no longer required to add back the amount previously deducted.
Reporting Requirements
- Report the addback on the applicable IA 1040 Schedule 1 line for Iowa additions (income modifications), as instructed in the IA 1040 instructions. The amount is reported as an Iowa addition unless it qualifies for an exception, such as a qualified rollover to a Roth IRA.
Source:
Form IA 1040
IA 1040 Schedule 1 Instructions
Disclaimer: Always verify details with the official Iowa Department of Revenue forms and instructions. Tax rules may vary by year and individual circumstances. For complex situations, consult a CPA or tax professional.