Section 529 plans are accounts that offer tax advantages for educational saving and allow families to begin contributing to a child’s college fund as soon as a baby is born. Such accounts can receive contributions from parents, family members, and friends (to a certain dollar amount each year), and grow free of taxation. All withdrawals used for qualified educational expenses are also exempt from federal income tax, and many states have begun waiving their taxes, as well. For some families, this can mean less stress about applying for financial aid or searching for scholarships.
Reasons to Open a 529 Savings Plan
In order to combat some of the debt associated with a college degree in the U.S., parents often start saving for their child’s education at birth. Contributing to a 529 savings plan offers tax benefits for contributors, especially in Illinois, where contributors can deduct up to $10,000 for single filers, and up to $20,000 for joint filers. This is one of the highest deduction limits in the country, and Illinois’ 529 savings plans come with a variety of additional tax benefits. Donations to these plans aren’t reserved exclusively for first-degree relatives, and they can be filled with contributions from extended family and friends, as well.
3 Different 529 Plan Options in Illinois
Illinois has 281 colleges and universities, with the average annual tuition, books, and housing costs hovering around $24,879 (in-state), $28,468 (out-of-state), or $44,339 (private) depending on the type of institution in which a student is enrolled. The state has three 529 savings plans:
Making Contributions
Any U.S. citizen or legal resident over the age of 18 can contribute to a 529 savings plan. All three of Illinois’ plans have a minimum contribution of just $25 a month. If you opt for a payroll deduction, you can contribute as little as $15 a month. The maximum amount you can put into a 529 savings plan in Illinois is $450,000.
529 Savings Plan Details
The money in an Illinois 529 savings plan does not need to be used within a certain amount of time or by a specific age. It offers flexibility for students who opt to take breaks after high school or who start working and go back to school later in life. If a child decides she doesn’t want to go to a two- or four-year school, the money is not lost. Account owners can choose to switch beneficiaries at any time. If money is taken out from the 529 plan for non-educational expenses, the funds must be reported as income, and become subject to taxes and penalties.
