Find answers to some common questions about Bright Start 529 Plans.
Who can open an account?
Accounts can be opened by almost anyone, including individuals, UGMA/UTMA custodians, certain legal entities, or a trust. There are no income or residency requirements.
- How do I open an account?
- Who can be a beneficiary?
Anyone can be named as a beneficiary. However, each account is limited to a single beneficiary.
- Who can make contributions?
Anyone is able to contribute to a Bright Start 529 account.
- What is the Illinois state income tax deduction?
Illinois State taxpayers who open an account can enjoy Illinois tax benefits by investing in Bright Start. Contributions to Bright Start can be deducted from Illinois State income up to:1
- $10,000 per Illinois taxpayer
- $20,000 for married Illinois taxpayers filing a joint return
December 31 deadline for contributions. To be deductible for a calendar year you must make the contribution before the end of that given calendar year. Contributions postmarked on or before December 31, will be treated as having been made in the year in which it was sent.
This deduction is available to Illinois taxpayers. In addition, investments are not subject to Illinois state income tax while in a Bright Start account. And when withdrawn for qualified college expenses, they are not subject to federal or Illinois state income tax.2
Ask your tax professional for additional information.
1Individuals who file individual Illinois state income tax returns can deduct up to $10,000 per tax year ($20,000 if filing jointly) for their total, combined contributions to the Bright Directions College Savings Program, the Bright Start College Savings Program, and CollegeIllinois! during that tax year. The $10,000 (individual) and $20,000 (joint) limit on deductions will apply to total contributions made without regard to whether the contributions are made to a single account or more than one account. The amount of any deduction previously taken for Illinois income tax purposes is subject to recapture in the event an Account Owner takes a Nonqualified Withdrawal from an Account or if such assets are rolled over to a non-Illinois 529 plan.
2Withdrawals used to pay for Qualified Higher Education Costs are free from federal and Illinois state income tax. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses incurred by students who are enrolled at least half-time; the purchase of computer or peripheral equipment, computer software, or Internet access and related services, if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution; and certain expenses for special needs services needed by a special needs beneficiary.
- How are contributions made?
There are many ways to contribute. Contribute by:
- Sending a check.
- Rolling over funds from an out-of-state 529 plan.
- Set up an automatic investing plan from your bank account on the schedule you select.
- Establishing a payroll deduction at work (check with employer for availability).
- Inviting family and friends to contribute via GiftED.
- Earning reward dollars using your Bright Start 529 Rewards Visa® Card.
- Can I transfer assets from another 529 plan?
Yes. You can complete a rollover form to transfer assets from another 529 plan and gain the benefits of the Illinois state income tax deduction. A same-beneficiary rollover/transfer is allowed once in a 12-month period. Additional transfers are allowed but require a change of beneficiary. There may be potential adverse tax consequences if the transfer or rollover is not a qualified rollover. Investors should consult with a tax advisor.
- Is the Program audited?
Each year an independent public accountant selected by the Program Manager will audit the Plan. The auditors will examine financial statements for the Plan. The Treasurer and State may also conduct audits of the Program and Trust.
- Where can I obtain a copy of the audited financial statements?
You can download a copy of the latest audits here:
- Does the beneficiary have to attend school in Illinois?
No. Many beneficiaries will attend Illinois schools; however, funds may be used at eligible schools nationwide and some foreign schools too.
- Which schools are eligible institutions?
Public and private colleges and universities, vocational, trade, technical, and professional institutions, and even some foreign schools are eligible. They need only meet the accreditation criteria and be eligible to participate in Federal Student Aid programs. Check out a listing of eligible schools from the Department of Education.
- What are qualified education expenses?
Qualified Higher Education Expenses (Source: IRS Publication 970 (January 17, 2020)).
These are expenses related to enrollment or attendance at an eligible postsecondary school. As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time, defined later.
- The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school.
- Tuition and fees.
- Books, supplies, and equipment.
- Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school.
- Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). The expense for room and board qualifies only to the extent that it isn’t more than the greater of the following two amounts.
- The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
- The actual amount charged if the student is residing in housing owned or operated by the school. You may need to contact the eligible educational institution for qualified room and board costs.
- The purchase of computer or peripheral equipment, computer software, or Internet access and related services if it’s to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school. (This doesn’t include expenses for computer software for sports, games, or hobbies unless the software is predominantly educational in nature.)
- For distributions made after 2018, expenses for fees, books, supplies, and equipment required for the designated beneficiary’s participation in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act.
- For distributions made after 2018, no more than $10,000 paid as principal or interest on qualified student loans of the designated beneficiary or the designated beneficiary’s sibling. A sibling includes a brother, sister, stepbrother, or stepsister. For purposes of the $10,000 limitation, amounts treated as a qualified higher education expense for the loans of a sibling are taken into account for the sibling and not for the designated beneficiary. You can’t deduct as interest on a student loan any amount paid from a distribution of earnings from a qualified tuition program after 2018 to the extent the earnings are treated as a tax free because they were used to pay student loan interest.
Qualified Elementary and Secondary Education Expenses
These are expenses for no more than $10,000 of tuition, incurred by a designated beneficiary, in connection with enrollment or attendance at an eligible elementary or secondary school.
Half-time student. A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled.
*CAUTION – Illinois Qualified Expenses do not include expenses for:
- tuition in connection with the Beneficiary’s enrollment or attendance at an elementary or secondary public, private, or religious school. The amount of cash distributions for such expenses from all 529 qualified tuition programs with respect to a Beneficiary shall, in the aggregate, not exceed $10,000 during the taxable year;
- tuition, fees, books, supplies, and equipment required for participation in an Apprenticeship Program;
- payments on Qualified Education Loans of the Beneficiary or a sibling of the Beneficiary, subject to a $10,000 aggregate limit.
- If a withdrawal is made for such purposes it may be a Federal Qualified Withdrawal and not be included in income for federal and Illinois purposes, but if an Illinois income tax deduction was previously claimed for Contributions to the Account all or part of that deduction may be added back to income for Illinois income tax purposes.
Please consult with your tax advisor.
- How can I request a withdrawal from my account?
- When I withdraw funds for college, what else should I consider?
Make sure you keep receipts and invoices for any qualified college expenses in your tax files. Bright Start does not require any proof of your withdrawals, but you will want to have documentation of your expenses in the event the IRS has questions. We also recommend that you match any withdrawals from your Bright Start 529 account in the same calendar year as you pay the actual qualified college expense.
Checks can be made payable to either the account owner, beneficiary, or school. Keep in mind that the recipient of the withdrawal will receive the 1099-Q tax reporting form regarding the withdrawal. The account owner will receive the 1099-Q for any withdrawals payable to them. The beneficiary will receive the 1099-Q for any withdrawals payable to the beneficiary or the school. As you plan to take withdrawals, keep in mind any potential tax consequences when determining how you would like the check issued.
PLEASE NOTE: The earnings portion of a non-qualified withdrawal is subject to federal and state income tax and 10% federal penalty tax. The amount of any deduction previously taken for Illinois income tax purposes is added back to Illinois taxable income in the event an account owner takes a nonqualified withdrawal from an account or if such assets are rolled over to a non-Illinois 529 plan. If Illinois tax rates have increased since the original contribution, the additional tax liability may exceed the tax savings from the deduction.
Make sure to consult with your tax professional regarding the best strategy when withdrawing funds. Your 529 withdrawals can be tax-free, but you should consider the various federal and state tax credits and deductions available as well. You can use qualified college expenses for one tax credit, deduction, or tax-free 529 treatment. Generally you cannot “double dip” and use the same expenses for multiple tax credits, deductions, and tax-free withdrawal treatments from your 529. Consult your tax advisor for more information or advice.
Recontribution of Refunded Amounts
If a student receives a refund of qualified education expenses that were treated as paid by a 529 distribution, the student can recontribute these amounts into a 529 for which they are the beneficiary within 60 days after the date of the refund to avoid the need to figure the taxable part of the 529 distribution.
- What if my beneficiary does not go to college, or does not use all the funds?
You have several options.
- You can leave the funds in the account in the event your beneficiary (or another member of the family) goes back to school at a later date.
- You can change the beneficiary to another member of the family for their college expenses.
- You can withdraw the funds as a non-qualified withdrawal. The earnings portion (not the amount you contributed) is subject to federal and state income taxes and a 10% federal penalty tax*.
*The amount of any deduction previously taken for Illinois income tax purposes is added back to Illinois taxable income in the event an account owner takes a non-qualified withdrawal from an account or if such assets are rolled over to a non-Illinois 529 plan. If Illinois tax rates have increased since the original contribution, the additional tax liability may exceed the tax savings from the deduction. Please consult with your tax professional.
The Bright Start Direct-Sold College Savings Program is sponsored by the State of Illinois and administered by the Illinois State Treasurer, as Trustee. Union Bank & Trust Company serves as Program Manager. Investments in the Bright Start Direct-Sold College Savings Program are not guaranteed or insured by the State of Illinois, the Illinois State Treasurer, Union Bank & Trust Company, the Federal Deposit Insurance Corporation, or any other entity.
An investor should consider the investment objectives, risks, and charges and expenses before investing. This and other important information is contained in the Bright Start Direct-Sold College Savings Program Disclosure Statement which can be obtained at BrightStartSavings.com and should be read carefully before investing. You can lose money by investing in a portfolio. Each of the portfolios involves investment risks, which are described in the Program Disclosure Statement.
Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s 529 plan.
Not FDIC Insured | No Bank Guarantee | May Lose Value
- How do I open an account?