As children begin to return to school for the 2021-2022 academic school year, parents with children of all ages should know that it is never too early to begin saving for their children’s college fund. The Illinois Bright Start College Savings Plan is an excellent vehicle that offers tax breaks to encourage savings for college tuition.
The Bright Start College Savings Plan allows Illinois
taxpayers to claim state tax deductions on contributions up to $10,000 for
individual taxpayers and $20,000 for married couples filing their taxes
jointly. An account owner can contribute $15,000 each year, provided that no
other gifts are made to the same beneficiary that year. It also allows tax-free withdrawals for
higher education expenses at the federal and state level. This includes, among
other things, withdrawals for tuition, fees, books, supplies and equipment,
room and board, etc. There are narrow exceptions to this rule, however.
A contributing taxpayer does not have to be the parent of a
beneficiary to open a 529 College Savings Plan. The program has no limitations
with respect to who can open accounts. Therefore, if you are a grandparent,
relative, or even a friend to a potential beneficiary, you are able to open a
529 College Savings Investment Account for that individual. There are also no
income limitations to individuals opening these accounts, so you can open an
account no matter what your income level may be for tax purposes.
If you have contributed to the 529 Savings Plan and your
beneficiary decides not to enroll in higher education, you do have options. For
one, you could change the beneficiary to an individual who intends to enroll in
higher education or you can withdraw the funds from the account. Keep in mind
that if you were to withdraw these funds, the amount would be subject to
federal and state income taxes, plus a 10% penalty.
The Bright Start contribution is simple and easy to use. You
can contribute via an automatic investing plan which allows you to have a fixed
amount automatically debited from your account on a periodic basis. You can
also choose to make a lump sum one time deposit of up to $75,000[1],
or have a payroll deduction taken straight from your paycheck each pay period.
Additionally, if you are new to Illinois but have a 529 College Savings Plan
already established in a different state, Bright Start allows you to roll over
the funds from the out of state program to the Bright Start 529 account and
keep all of the funds, while potentially earning an Illinois state Income tax
deduction by rolling over.
For more information and to open your 529 College Savings
Investment account, you can visit www.brightstart.com. They have a number of different portfolios
that you can choose to enroll in. It is recommended that you complete the Risk
Tolerance Questionnaire on the website prior to enrolling. This questionnaire
will help determine how you would like to allocate your money and develop an
investment plan going forward.
If you have any questions about the Bright Start College Savings Plan, please feel free to contact Glick and Trostin, LLC at 312-346-8258.
Disclaimer: The materials on this website are provided for informational purposes only and do not constitute legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between any attorney and any other person, group or entity. No representations or warranties whatsoever, express or implied are given as to the accuracy or applicability of the information contained herein. No one should rely upon the information contained herein as constituting legal advice. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances.
[1]
Gift tax return (Form 709) reporting may be required.
