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Bright Start Tax Benefits
Save with Bright Start 529 tax benefits.
While you save for college using a 529 plan, you can gain other financial benefits from your investment. Some of Bright Start’s benefits are exclusive to Illinois residents, but nearly anyone can contribute and benefit – even if you reside in another state.
Let’s explore how these benefits work.
Invest for tomorrow and benefit today.
All 529 plans allow contributions and any earnings to grow free of federal taxes. Plus, funds aren’t subject to federal income tax when withdrawn for qualified education expenses, including tuition, fees, room and board (if enrolled more than half time), books, supplies, equipment, a computer, special needs services, apprenticeship program expenses and up to $10,000 in qualified education loan payments.1
Taxable vs Tax-Deferred Investing over an 18-year Timeframe
- With the power of compound interest, time is on your side every day you have money in your account. The sooner you start saving, the more your Bright Start account has time for interest to capitalize – accumulating dollars that you haven’t contributed out of pocket.
- The lesson from all of this? Place your start line as far from your finish line as possible. Start saving today!
Explore tax benefits for Illinois residents.
As an Illinois taxpayer, you’ll realize benefits now from starting a Bright Start 529 college savings account. Each year, you can deduct your contributions to your Bright Start account up to:
- $10,000 per individual taxpayer.
- $20,000 for a married couple filing jointly.
Plus, when you withdraw funds for an Illinois qualified expense you pay no Illinois state income tax.2
If you recently moved to Illinois from another state and roll over another state 529 plan to a Bright Start account, you can deduct the contribution portion (but not the earnings) from your taxes. To be deductible for a calendar year, your contribution has to be made by December 31 of that given calendar year.
For more on tax considerations, visit our Tax Center.
A smart choice for all families in Illinois and across the country.
A Bright Start 529 account can be a great college savings vehicle for anyone, including out-of-state families. Each 529 plan has different investment options, fees, minimums, requirements, and more – so it’s good to shop around.
Each state handles 529 plan contributions differently:
- Tax benefit states are those that provide a state income tax deduction or credit for your 529 plan contributions.
- In most cases, you have to contribute to your home state’s 529 plan to qualify for a state income tax benefit, but there are several states – called tax parity states – that offer a state income tax benefit for contributions to any 529 plan.
- Tax neutral states do not have a state income tax or do not offer any state tax deduction or credit for 529 plan contributions – residents of those states can generally shop around for the best 529 plans available. Bright Start’s low costs, flexible investment options and quality fund families makes it a top choice for families outside of Illinois.
Check this map to see how your state handles 529 contributions.
As of April 1, 2023
Tax-Parity States include: Arizona, Montana, Minnesota, Kansas City, Missouri, Arkansas, Ohio, Pennsylvania, and Maine
States that offer tax benefits for contributions to any state’s 529 plan.
Tax-Neutral States include: Alaska, Hawaii, California, Nevada, Washington, Wyoming, South Dakota, Texas, Tennessee, Kentucky, New Hampshire, North Carolina, and Florida
States without state income taxes or other state benefits for investing in that state’s 529 plan.
Tax-Benefit States include: Oregon, Idaho, Utah, Colorado, New Mexico, North Dakota, Nebraska, Oklahoma, Iowa, Wisconsin, Illinois, Louisiana, Mississippi, Alabama, Georgia, South Carolina, Virginia, West Virginia, Indiana, Michigan, New York, Vermont, Massachusetts, Rhode Island, Connecticut, Maryland, and Washington D.C.
States where income tax benefits are only available for those who pay income tax in that state and own, or contribute to, that state’s 529 plan.
Estate planning and 529 plans
Contributions to a 529 account are considered a gift from the contributor to the account beneficiary (the future student designated to receive the funds). In addition, 529 accounts are typically excluded from the 529 account owner’s taxable estate. Amounts in a 529 account when the account’s beneficiary dies are included in their estate, not the account owner’s.
As the owner of a 529 account, your contributions are eligible for the annual gift tax exclusion, which is currently $17,000 per beneficiary. 529 plans also allow for a special gift tax exclusion election.
In general, this rule allows you to contribute up to $85,000 for each beneficiary in a single year without federal gift tax consequences – as long as you make no other gifts to the beneficiary in the same year or for the four following calendar years.
This election needs to be made on a federal gift tax return. Under this rule, a portion of your contributions are subject to being added back into your taxable estate in the event of your death within the five-year period. A tax advisor should be consulted when considering larger gifts.3
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