By Wendy Mihm | July 6, 2011
If you live in Illinois, rejoice! Illinois 529 plans are a great way to save for college for 2 really important reasons.
Reason 1: Illinois Offers a State Income Tax Deduction for 529 Contributions
If you live in the state of Illinois and you elect an Illinois 529 plan, your contributions to the plan are tax deductible up to $10,000 a year for individuals, or $20,000 per year for married taxpayers who file a joint return.
However, it’s important to note that if you later decide to roll that Illinois-sponsored plan over to a different 529 plan sponsored by another state, you must then report the tax deduction for that year as income.
You should also know that this ability to deduct your 529 contributions does not mean that your child (or whomever the beneficiary may be) must attend college in the state of Illinois! He or she may attend college wherever they are accepted – including a growing number of schools outside the U.S.
Reason 2: Illinois 529 Plans Have Some of the Lowest Fees Around
In our article “Top 529 Plans: How to Choose the Best 529 College Savings Plan,” we link to Kiplinger’s list of top plans. In Kiplinger’s top picks, they actually list the Illinois Bright Start College Savings Program as their top choice in the “Best for Low Fees” category. And if you read our “Top 529 Plans” article, you’ll understand how critical it is to find a plan with low fees!
Illinois also offers the Bright Directions College Savings Program, which is an advisor-sold program managed by Union Bank and trust and offering funds managed by female and minority-owned firms.
Both provide unique offerings and are certainly worthy of exploration by Illinois residents – especially given the state tax write off!
General Rules for Illinois 529 Plans
Where can the money be used?
Again, whether you elect a state-sponsored plan or not (though the state tax write off certainly makes in-state plans compelling for residents), your child can use 529 plan funds for qualified education expenses wherever he or she decides to attend college.
Who owns the money in the 529 plan?
Whoever sets up the 529 plan becomes the owner (or joint owners). That person, or those people, do not have to be the parents. They control the money and they establish a “beneficiary” for whom the money will be used – this person, typically but not always, a child, will be the one who goes to college and uses the money to study.
What if I Want to Switch 529 Plans?
If you find a plan that you like better and you decide to switch, you can. You can switch plans as often as once a year, if you want to.
What if My Child Does Not Go to College?
You can switch the money to another beneficiary.
Who Can Contribute to?
Anyone can contribute to an Illinois 529 plan (or any 529 plan, for that matter)!
What if My Child (the 529 Beneficiary) Gets a Scholarship?
You have a few options. You could take the money out of the 529 plan and you wouldn’t have to pay a penalty, but you would have to pay taxes on the earnings. You could transfer the money to a different beneficiary. Or you could leave the money in the 529 plan and wait for another option to become available – i.e. your circumstances change, laws change, etc.
Are there any Income Restrictions on Contributing to the 529?
There are no income limitations with regard to who may contribute to a 520 plan – you can put money into these plans regardless of how much or how little income you make.
What if my Child (the 529 Beneficiary) Goes to College Later?
There are generally no time limits as to when the money must be spent.
Should I consult a CPA or a CFP About a 529 Plan?
It’s always a good idea to run your financial plans past a Certified Public Accountant (CPA) or a Certified Financial Planner to ensure you have a full understanding of the plan you’re setting up. The FinancialRx Directory, coming in Fall 2011, is a great place to find the right finance pro for you.
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