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Illinois families eligible for tax breaks on 529 college savings
CHICAGO — By taking action before the end of December, families who hope to help their children afford a college education can receive a boost in their accumulated savings.
Three specific tax benefits can be realized by adding a Bright Start 529 College Savings Plan to year-end tax planning strategies.
Bright Start contributions can be used for holiday gifts for children, grandchildren or any loved ones.
In Illinois, those who contribute to a Bright Start 529 plan receive three particular tax benefits, as follow:
1. Contributions are deductible from personal income, generating a 5 percent benefit based on the state’s current income tax rate.
2. Earnings grow tax-free over the life of the account.
3. Withdrawals are not taxed when used for qualified education expenses.
“For families who want to save for college, Bright Start accounts are an outstanding tool,” said Illinois State Treasurer Dan Rutherford. “For as little as $25 to begin, people can start saving for education and realizing the tax benefits. But remember, time is running short to take advantage of deductions on your 2012 Illinois taxes — contributions need to be made by the end of December. I urge parents and grandparents to consider these college savings accounts as thoughtful, meaningful holiday gifts for loved ones.”
Illinois raised its individual income tax rate from 3 percent to 5 percent in 2011. However, the state does allow for contributions to its Bright Start College Savings Plan to be deducted from personal income, lowering most individual’s state tax bill by 5 percent of their Bright Start contributions.
In essence, most parents who contribute $10,000 realize a “bonus” of $500 in a lowered tax bill.
Maximum contributions of up to $10,000 for an individual or $20,000 if married and filing jointly, can be deducted from your Illinois state taxable income each year. One can even rollover a 529 plan account from another state and deduct the amount of their contributions made to the former plan.
For more about Rutherford’s Bright Start College Savings Program, visit either www.treasurer.il.gov and click on the college savings link or go directly to the program’s website at www.BrightStartSavings.com.
From the Dec. 26, 2012-Jan. 1, 2013, issue