Glossary

A

Account

A separate account within the plan established by an account owner for a named beneficiary pursuant to a participation agreement.

Account application

The application to be completed and submitted to Bright Start 529, along with payment to open an account and to participate in the plan. It incorporates by referencing the plan participation agreement. Most 529 accounts are opened online.

Account owner

The individual or entity that has entered into a participation agreement and opened an account, or the individual or entity to which ownership of an account has been transferred. Owner of an account in the plan; typically the parent or grandparent, but it doesn’t need to be a family relation.

Active management

An investment approach that seeks to exceed the average returns of the financial markets. Active managers rely on research, market forecasts and their own judgment and experience in selecting securities to buy and sell.

Additional tax

A 10% additional federal tax that may be imposed on the earnings portion of a nonqualified withdrawal.

Apprenticeship program

Is an apprenticeship program registered and certified with the secretary of labor under Section 1 of the National Apprenticeship Act (29 U.S.C. 50).

Asset allocation

The distribution of funds within an investment portfolio among various investment alternatives or asset classes. Typically, asset allocation is expressed in percentages; for example, 40% equities, 40% fixed income and 20% cash.

Asset classes

Different types of investments. Equities (stocks), fixed-income (bonds) and money market (short-term investments) are examples of asset classes.

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B

Balanced fund

A fund that seeks both growth and income, with stability of principal, through a portfolio that includes both stocks and bonds.

Beneficiary

The individual designated in the plan enrollment form as the beneficiary of an account at the time the account is established, or the individual designated as the new beneficiary if the account owner changes the beneficiary of an account.

Bond

A bond is a type of debt security in which an investor loans money to an entity (typically corporate or governmental) that borrows the funds for a defined period of time at a variable or fixed interest rate. A collection or grouping of financial bonds is known as a bond portfolio.

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C

Capitalization (Cap)

The market value of a company’s outstanding securities, excluding current liabilities. Less than $3 billion is generally considered small cap; $2 billion to $10 billion is mid-cap; and more than $8 billion is large cap.

Code

Is the Internal Revenue Code of 1986, as amended from time to time.

Coverdell Education Savings Account (Coverdell ESA or ESA)

A Coverdell Education Savings Account is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account. It may be used to save for K-12 and higher education expenses and limits contributions to $2,000 per year, per child. This amount is less for higher earners as household income limitations apply.

Custodial account

An account that is created for the benefit of a minor, with an adult (agent, bank, trust company or other organization) as the custodian in accordance with applicable state law. With custodial accounts, control of the account transfers to the beneficiary at the age of termination.

Custodian

An agent, bank, trust company or other organization that holds and safeguards an individual’s account assets for them.

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D

There are no glossary terms that begin with the letter “D.”

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E

Education IRA

See Coverdell Education Savings Account (CESA or ESA).

Eligible educational institution

Includes virtually all accredited public, nonprofit and proprietary (privately owned profit-making) postsecondary institutions and certain educational institutions located outside the United States. Eligible Educational Institutions are those that are eligible to participate in the U.S. Department of Education’s Federal Student Aid Programs.

Enrollment Year Portfolio

Is a diversified investment portfolio that invests in equity, real estate, fixed income and/or cash and cash equivalents underlying investments with a risk profile that is based on the enrollment year of the beneficiary. Contributions and earnings are typically more heavily weighted in equity investments when the beneficiary is younger and more toward fixed income and cash and cash equivalent investments as the beneficiary nears their enrollment in postsecondary education.

Entity account application

This is the account application used by trusts or estates, business entities, Internal Revenue Code Section 501(c)(3) organizations or state/local governments. Download the Entity Account application.

Equities

Also called stocks. A security representing ownership rights in a company. A stockholder is entitled to share in the company’s profits, some of which may be paid out as dividends. A collection or grouping of financial equities is known as an equity portfolio.

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F

Family member

A “member of the family” of a beneficiary is a person related to that beneficiary as follows: (a) a son or daughter, or a descendant of either; (b) a stepson or stepdaughter; (c) a brother, sister, stepbrother or stepsister; (d) the father or mother, or an ancestor of either; (e) a stepfather or stepmother; (f) a son or daughter of a brother or sister; (g) a brother or sister of the father or mother; (h) a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law; (i) the spouse of the beneficiary or of any of the other foregoing individuals; or (j) a first cousin of the beneficiary. For this purpose, a child includes a legally adopted child, and a brother or sister includes a half-brother or half-sister.

Fixed-income securities

Also called bonds. Essentially, these are loans that you make to a government or corporation (called the issuer) when it needs to raise cash. They have a maturity date, which is the date the issuer is obligated to repay you the principal, or face amount, of the bond. Bonds also generally pay you interest until their maturity date. A collection or grouping of financial bonds is known as a bond portfolio.

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G

Growth fund

A mutual fund that generally invests in stocks of companies believed to have above-average potential for growth in revenue and earnings. These stocks typically have low dividend yields and above-average prices in relation to such measures as earnings and book value.

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H

High-yield bond

A bond that has a rating of BB or lower and that pays a higher yield to compensate for its greater risk. Also known as junk bonds.

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I

Illinois Section 529 programs

These are the Bright Start Direct-Sold College Savings Program, the Bright Directions Advisor-Guided 529 College Savings Program and College Illinois!, a prepaid tuition program.

Index fund

A passively managed mutual fund that seeks to match the performance of a particular market index.

Inflation-indexed securities

Bonds issued by the U.S. government, government agencies or corporations whose principal and interest payments—unlike those of conventional bonds—are adjusted over time to reflect inflation.

International stock fund

A mutual fund that invests in the stock of companies located outside of the United States.

Investment policy statement

Is the Bright Start Investment Policy Statement adopted by the Treasurer pursuant to the management agreement which sets forth the policies, objectives and guidelines that govern the investment of contributions in the plan. The Treasurer may amend the investment policy statement from time to time in accordance with the management agreement.

Investment portfolios

The plan investment options in which you may invest your contributions.

IRA

Individual Retirement Account (IRA) is a tax-deferred or tax-free retirement account established by an individual that permits the individual to set aside up to a certain amount per year, with earnings tax-deferred until withdrawals begin at age 59½ or later or, in the case of a Roth IRA, are tax-free on withdrawal. See a tax advisor for more detailed information.

IRS

The Internal Revenue Service is the nation’s tax collection agency and administers the Internal Revenue Code enacted by Congress.

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J

There are no glossary terms that begin with the letter “J.”

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K

Kiddie tax

A special tax law that applies to dependent children under the age of 18 at the end of the tax year (or full-time students younger than 24) who have unearned income that is in excess of an annually determined threshold. Extra income beyond this threshold becomes taxable at the guardian’s rate.

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L

There are no glossary terms that begin with the letter “L.”

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M

Maximum account balance

Is the threshold after which additional contributions to an account cannot be made. The maximum account balance is currently $500,000 and is applied against the aggregate value of all program accounts for the beneficiary and all accounts for the same beneficiary under other Illinois Section 529 programs, including any Illinois First Steps account. The treasurer periodically reviews and adjusts the maximum account balance to comply with the requirement under code Section 529 that a program prevent contributions in excess of those necessary to provide for the qualified higher education expenses of the beneficiary.

Medallion Signature Guarantee

Available from many domestic banks, trust companies, credit unions and other financial institutions, this is a special signature guarantee that ensures the authenticity of a signature for the transfer of a security.

Member of the family

Is a person related to the beneficiary as follows: (1) a child or a descendant of a child; (2) a brother, sister, stepbrother or stepsister; (3) the father or mother, or an ancestor of either; (4) a stepfather or stepmother; (5) a son or daughter of a brother or sister; (6) a brother or sister of the father or mother; (7) a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law; (8) the spouse of any of the foregoing individuals or the spouse of the beneficiary; or (9) a first cousin of the beneficiary. For this purpose, a child includes a legally adopted child and a stepson or stepdaughter, and a brother or sister includes a half-brother or half-sister.

Money Market fund

A mutual fund designed to provide safety of principal and current income by investing in securities that mature in one year or less, such as bank certificates of deposit, commercial paper and U.S. Treasury bills. Money Market funds seek to maintain a stable $1 net asset value. Money Market funds have the lowest risk of any type of mutual fund but may offer the lowest potential for gains.

Mutual fund

A professionally managed portfolio of securities that pools the assets of individuals and organizations to invest toward a common objective such as current income or long-term growth.

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N

Net Asset Value (NAV)

Also known as share price. The market value of a mutual fund’s total assets, minus liabilities, divided by outstanding shares.

Non-Qualified Withdrawal

Is any withdrawal from an account that is not a qualified withdrawal or a qualified rollover.

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O

There are no glossary terms that begin with the letter “O.”

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P

Participation agreement

The legally binding contract between an account owner and the trust. The current form of the Participation Agreement is attached as Exhibit A to the Plan Description. However, the Treasurer may amend the Participation Agreement at any time and for any reason by giving notice of such amendments.

Passive management

A low-cost investment strategy in which a mutual fund attempts to match—rather than outperform—a particular stock or bond market index; also known as indexing.

Plan

Is the Bright Start Direct-Sold College Savings Program.

Plan Manager

Is TIAA-CREF Tuition Financing, Inc (“TFI”).

Portfolio

Means any of the investment portfolios available, and to which contributions may be made, under the plan.

Program Manager

The program manager for the Bright Start Direct-Sold College Savings Program (Bright Start 529) is TIAA-CREF Tuition Financing, Inc. (TFI).

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Q

Qualified education loan

Means a loan as defined in Code Section 221(d) of the beneficiary or a sibling of the beneficiary.

Qualified higher education expenses

Qualified higher education expenses means, generally, the cost of tuition, fees, books, supplies and equipment required for the enrollment or attendance of a beneficiary at an eligible educational institution, certain housing and food (room and board), the cost of computer or peripheral equipment, certain software and internet access and related services if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution, as well as certain additional enrollment and attendance costs of beneficiaries with special needs.

For both federal and Illinois tax purposes, any reference to a qualified higher education expense also includes a reference to (i) expenses for fees, books, supplies and equipment required for the participation of a beneficiary in an apprenticeship program and (ii) amounts paid as principal or interest on any qualified education loan of either the beneficiary or a sibling of the beneficiary up to a lifetime limit of $10,000 per individual. Distributions treated as qualified higher education expenses with respect to the loans of a sibling of a beneficiary will count toward the limit of the sibling, not the beneficiary. Such loan repayments may impact student loan interest deductibility.

For federal but not Illinois tax purposes, any reference to a qualified higher education expense also includes a reference to tuition in connection with enrollment or attendance at a primary (i.e., elementary school) or secondary (i.e., middle school or high school) (together, referred to as “K-12”) public, private or religious school up to a maximum of $10,000 of distributions for such tuition expenses per taxable year per beneficiary from all 529 plans.

State tax treatment of withdrawals for K-12 tuition expenses, apprenticeship expenses and repayment of qualified education loans, and Roth IRA rollovers is determined by the state where you file state income tax. Withdrawals for K-12 tuition expenses are not qualified withdrawals for Illinois tax purposes. Please consult with a tax advisor before withdrawing funds for any such expenses, rollovers or loan repayments.

Qualified withdrawal

Qualified withdrawal means a withdrawal from an account that is used to pay the qualified higher education expenses of the beneficiary, or sibling of the beneficiary, where applicable.

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R

Rollover

A tax-free transfer of funds from one qualified 529 plan to another within a specific time frame, usually 60 days. You are permitted to transfer funds from another 529 college savings plan to an account in the Bright Start 529 College Savings Plan for the same beneficiary once within a 12-month period without incurring federal income tax. The 529 college savings plan from which you are transferring funds may be subject to differences in features, costs and surrender charges. You should consult with your tax advisor or the other 529 college savings plan. State and local taxes may apply.

Roth IRA

Roth IRA means an individual retirement account established under Section 408A of the Code.

Roth IRA rollover

Means a direct transfer from an account on a Roth IRA on or after January 1, 2024, that meets the requirements set forth in Section 529 of the Code.

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S

Section 529

Section 529 of the Internal Revenue Service Code; the section that specifies the requirements for qualified tuition college savings programs (529 plans).

Securities

The general name used to describe stocks, government obligations, corporate bonds or ownership rights, such as options or futures.

Successor account owner

The successor account owner is the person designated by the account owner on the account application to succeed to ownership of the account upon the account owner’s death.

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T

Taxable withdrawal

Any withdrawal from an account that is: (a) paid to a beneficiary of, or the estate of, the beneficiary on or after the beneficiary’s death; (b) attributable to the permanent disability of the beneficiary; (c) made on account of the receipt by the beneficiary of a scholarship award or veterans’ or other nontaxable educational assistance (other than gifts or inheritances), but only to the extent of such scholarship or assistance; (d) made on account of the beneficiary’s attendance at a military academy, but only to the extent of the costs of education attributable to such attendance; or (e) equal to the amount of the beneficiary’s relevant qualified higher education expenses that is taken into account in determining the beneficiary’s hope scholarship/American opportunity tax credit or lifetime learning credit. A taxable withdrawal is a subcategory of nonqualified withdrawals that is subject to federal income tax but not the 10% additional tax.

TIAA-CREF Tuition Financing, Inc.

TIAA-CREF Tuition Financing, Inc. (TFI) is an affiliate of TIAA, a financial services organization with more than 100 years of investment experience.

Total return

A percentage change, over a specified time period, in a mutual fund’s net asset value, adjusted to reflect the reinvestment of all dividend and capital gain distributions.

Treasurer

Is the Illinois Office of the State Treasurer.

Trust

Is the Bright Start College Savings Program Trust.

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U

UGMA

Uniform Gifts to Minors Act. Laws adopted by most states allowing an adult to contribute to a custodial account in a minor’s name without having to establish a trust or name a legal guardian. Thus, minors can have securities bought and money invested in their names, but the custodian is responsible for managing the funds in the account. The custodian has a fiduciary duty to manage the account prudently, but once the minor reaches the age of majority, he/she has complete rights to the funds in the account. The assets are the legal property of the minor, and the parent has no legal control over the uses of the proceeds of the account. All withdrawals from the account are taxed at the minor’s rate. Putting money into a UGMA account can negatively impact the chances for financial aid because financial aid officers may weigh children’s assets more heavily than parents’ assets.

Underlying investments

Means the underlying investment funds that the portfolios invest in and may include mutual funds, ETFs, separately managed accounts, bank deposits and other investment vehicles.

Unit

An ownership interest in an investment portfolio that is purchased by contributing to an account.

UTMA

Uniform Transfers to Minors Act. Law that extends the Uniform Gifts to Minors Act definition of a gift to include real estate, fine art, patents and royalties.

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V

There are no glossary terms that begin with the letter “V.”

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W

There are no glossary terms that begin with the letter “W.”

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X

There are no glossary terms that begin with the letter “X.”

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Y

There are no glossary terms that begin with the letter “Y.”

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Z

There are no glossary terms that begin with the letter “Z.”

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0-9

1099Q

An IRS form an individual receives if withdrawals were made from a 529 or Coverdell Education Savings Account (ESA) during the previous tax year. The form is used by the individual to fill out both federal and state tax returns.

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