529 College Savings Plan [Post 27]

The 529 plan is a special education savings account designed to provide tax advantages for families saving for future college expenses. It allows anyone to contribute on behalf of the beneficiary, so make sure to let grandma and grandpa know.

Today, I'll focus on the Illinois Bright Start 529 Plan, which is particularly beneficial for my friends residing in Missouri but have family in Illinois. Both Illinois and Missouri residents can claim a tax deduction of up to $10,000 for individuals and $20,000 for married couples filing jointly when using the Illinois 529 plan on qualified college expenses.

Within the Bright Start plan, there are various investment options, such as age-based portfolios that become less risky as the child nears college age, and individual investment choices that allow selection from a list of mutual funds.

One of the significant benefits of the 529 plan is that contributions and earnings grow tax-free. Additionally, withdrawals are also tax-free if they are used for qualified higher education expenses, which include tuition, books, room and board, computers, and other items.

It's essential to note that the 529 plan is not restricted to four-year universities; it can also be utilized for qualified expenses related to K-12 tuition, associate degrees, trade schools, and vocational schools. *K-12 and other programs may disallow tax deductions if they are not considered qualified college expenses. Consult with a tax professional or visit the Brightstart page for more information.

In the event that there are remaining funds in the account after all qualified expenses have been covered, there are several options to consider:

• The beneficiary can be changed to another immediate family member for their educational expenses.

• Starting in 2024, funds from the 529 plan can be rolled over into a Roth IRA account, up to a limit of $35,000.

• Alternatively, assets can be distributed, though they would be subject to a 10% penalty and federal income tax.

In summary, the 529 plan is an excellent tool for saving for education expenses and offers attractive tax benefits, making it an essential consideration for families planning for their loved ones' future education.

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Works Cited

529 college savings plans for your future student. Bright Start. (2019, October 29).

Beck, R. H. (2023, April 14). 529 plan rollover to a Roth IRA. Forbes.

Kagan, J. (2023, April 30). 529 plan: What it is, how it works, Pros and Cons. Investopedia.

Investor Bulletin: 10 Questions to Consider Before Opening a 529 Account. Investor.gov. (2018, May 29).