Using Your 529 Savings Account
Before You Use Your Bright Start FundsHere are a few key things to remember as you consider using your 529 funds:
- As the account owner of the Bright Start 529 account you control the account and determine when and where funds are paid.
- The beneficiary you have named on your account (the student you are saving for) is the individual whose qualified college expenses can be paid.
- Your Bright Start account is flexible and can be used at eligible educational institutions across Illinois, the nation, and even some foreign schools.
Ready to Use Your Bright Start Funds?
When the beneficiary of the account is ready for college, you can rest assured that your Bright Start savings will be available to help with the costs of college. We’ve included the following helpful tips and considerations as you get ready to use your funds.
Use 529 funds at any eligible educational institution.Funds can be used at any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution. We have also included a link below for your convenience in checking eligible educational institutions. Students are not limited to U.S. colleges. Certain educational institutions located outside the United States also participate in the U.S. Department of Education’s Federal Student Aid (FSA) programs. Check out a listing of eligible schools from the Department of Education.
529 funds can be used to cover a variety of qualified educational expenses.IRS Publication 970 defines qualified education expenses as: Expenses related to enrollment or attendance at an eligible postsecondary school. As shown in the following list, some of the expenses must be required by the institution and some must be incurred by students who are enrolled at least half-time to be qualified.
- 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 post-secondary school.
- Expenses for room and board must be incurred by students who are enrolled at least half-time. 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.
- 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.)
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.
K-12 Expenses. Federal law, but not Illinois law, permits an aggregate of up to $10,000 during a taxable year from all 529 qualified tuition programs for a Beneficiary to be used for tuition or connection with the Beneficiary’s enrollment or attendance at an elementary or secondary public, private or religious school. Such a distribution would be an Illinois Nonqualified Distribution and the amount of any deduction previously taken for Illinois income tax purposes (or a portion of such amount) would be added back to Illinois taxable income. Consult with your tax or legal advisor before making such distributions.
Ready to Withdraw Funds?
When it comes time to use your 529 plan for qualified expenses, withdrawing funds is simple. Money from your Bright Start account can be paid directly to you as the account owner, directly to the beneficiary, to the account owner’s bank account, or to an eligible educational institution.
An account owner or custodian (under a state UGMA/UTMA) may request a withdrawal online or by downloading and submitting the Withdrawal Request Form.
Be sure to plan ahead when requesting a withdrawal. Generally, if a request is received in good order on a business day prior to the close of the markets (typically 3 p.m., Central time), the investments will be sold at that day’s closing prices, the funds will be received by the Plan the following business day, and a check mailed. Please plan ahead and allow 7 – 10 days for mail time. For withdrawals payable to the account owner’s bank account, please allow several business days for your bank to process the payment and credit your account.
Please Note: the earnings portion of a withdrawal for nonqualified expenses is subject to federal and state income tax, an IRS 10% penalty tax, and may be subject to an Illinois recapture tax of previously deducted contributions.
Withdraw Funds at Your Convenience with Bright Start
Important timing considerations when withdrawing funds
Be sure to plan ahead when requesting a withdrawal. Generally, if a request is received in good order on a business day prior to the close of the markets (typically 3 pm Central time), the investments will be sold at that day’s closing price, we will receive the proceeds from the mutual fund the next morning, and a check will be mailed. Please plan ahead and allow adequate time for the college to receive and process the payment (we suggest requesting your withdrawal 10 days prior to the due date). For withdrawals payable to the account owner’s bank account, please allow several business days for your bank to process the transfer and credit your account.
Bright Start can also make payments directly to a college or university. Please note that some institutions may take three to seven business days to post payments to a student account. Please allow sufficient time for mail time and processing by the school.