The Terms to Know When Saving with a 529 Plan
As you learn more about saving for college with a 529 college savings plan, you may come across words or phrases that are new to you. Let’s break down those terms so you can make the best choices for you and your family when saving for college.
Automatic Investment Plan
Qualified Education Expenses
A qualified withdrawal is any money taken from a college savings account used at eligible institutions for qualified education expenses. These payments are generally tax-free.
If you use 529 plan funds for non-college related expenses, it becomes a non-qualified withdrawal, and the earnings portion of the withdrawal is subject to income tax and an additional 10% penalty tax.
Saving for college shouldn’t be hard, and Bright Start doesn’t want investing terms to become barriers to saving. Now that you know the terms, take the next step and start learning about 529 plans here.
1Withdrawals used to pay for Illinois Qualified Expenses are free from federal and Illinois state income tax. Illinois Qualified 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; certain expenses for special needs services needed by a special needs beneficiary; apprenticeship program expenses; and, repayment of up to $10,000 of qualified education loans.
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 any deduction previously taken for Illinois income tax purposes is subject to recapture in the event an Account Owner takes a Nonqualified Withdrawal or Illinois Nonqualified Withdrawal from an Account or if such assets are rolled over to a non-Illinois 529 plan.