Bright Directions and Other Illinois 529 College Savings Plans

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Student loan debt in the U.S. is on track to exceed $1.7 trillion. As multiple generations of young Americans struggle against the burden of this debt, state governments are being forced to search for better ways to support families who want to save money for their children's higher education.

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 can be filled with contributions from extended family and friends, as well.

Any earnings on the plan are not subject to income tax, so as the investments grow, a 529 savings plan can be a powerful tax-sheltered tool to pay for higher education. 

Three 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:

Highlights:

  1. Bright Start College Savings (Direct-Sold): This plan is offered directly by the state and blends age-based options with static options. Age-based options begin with aggressive investment strategies but grow more conservative as the beneficiary gets closer to graduating from high school. The plan has low annual fees, making it a strong way to maximize your investments. 
  2. Bright Start College Savings (Advisor-Sold): Offered by third-party financial advisors, this plan has higher fees than the Bright Start College Savings Program but also offers more options. It has a broad portfolio with a mix of stocks, bonds, fixed income, and money market funds. 
  3. Bright Directions College Savings: This plan is also sold exclusively by third-party advisors. It has several age-based options and over 50 static options for investors. This plan has higher annual fees than the others but has also shown higher annual returns on investments. 

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 plans 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 beneficiary takes years off school to start a job or decides they want to pursue their degree later in life, the 529 savings plan will remain intact for educational expenses. 

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.

Article Sources

  1. Federal Reserve Bank of St. Louis. "Student Loans Owned and Securitized, Outstanding." Accessed Nov. 13, 2020.

  2. College Tuition Compare. "2020 Tuition and Living Costs Summary By State." Accessed Nov. 13, 2020.