Illinois 529 Plan
By: Marissa Garceau
What is a 529 Plan?
A 529 Plan is a tax-advantages savings plan designed to encourage saving for future college costs. Legally known as "qualified tuition plans," they are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. There are two types of 529 plans: pre-paid tuition plans and college savings plans. Pre-paid tuition plans generally allow the college savers to purchase units or credits at participating colleges and universities for future tuition and in some cases, room and board. College saving plans generally permit the college saver, or account holder, to establish an account for a student for the purpose of paying the student's eligible college expenses.
What is a 529 College Savings Plan?
Illinois 529 College Savings Plans
Illinois have 3 different 529 college savings plans and prepaid tuition programs. All Illinois programs have a limit of $350,000 in each account and some plans are offered to people who live out of state. This year, Illinois has decided to lower the costs of all the 529 plans, saving the investors nearly $3.6 million annually.
College Illinois! is a 529 prepaid tuition program. It has a three step process: 1. Pick a flexible prepaid tuition plan, 2. Choose a payment option that fits your budget, and 3. Prepay at today's plan price to prevent tuition inflation. Some of the advantages of this plan include being exempt from Illinois State income tax, being able to buy up to 9 semesters with multiple plan choices and payment options that fit your budget, it can be used at almost any college or university in Illinois or the U.S., unused benefits can be transferred to another family member, anyone 18 or older and a resident of the U.S. can purchase a contract for a future student, and you can transfer funds from another qualified tuition program. If you want to cancel the plan, you will get a refund. To cancel the plan, you have to call the number on the website and talk with service representatives.
Bright Start is a 529 education savings program for Illinois. It allows you to save money toward your future student's education in an account from Bright Start and you don't pay taxes on any earnings. When college begins, you can make tax-free withdrawals from the account to pay for qualified expenses at most schools. Anyone can open a Bright Start account, even if you're out of state. The only rule is that the account owner and student have a valid social security number or taxpayer identification number. If you live in Illinois, you can receive extra state tax benefits. You must enroll online and invest money in various portfolios of stock and bond investments to save. There have been some scandals surrounding this plan in the past, which resulted in the loss of millions of dollars in college funds.
Bright Directions is a College Savings Program that is also part of the Illinois College Savings Pool. It is designed to act as a qualified tuition program under Section 529. This program is sponsored by the State of Illinois, specifically Michael Frerichs, Illinois State Treasurer. Its primary purpose is to promote and enhance the affordability and accessibility of higher education by offering a convenient and tax-advantaged way to save for the cost of college and other qualifying post-high school education. Bright Directions uses investments. These investments will grow tax-free as long as the withdrawals are used to pay for higher education expenses, like tuition, fees, book, or room and board. Illinois residents also receive additional tax benefits.
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