Bright Directions Tax Benefits and Highlights
Save with Bright Directions 529 tax benefits.
When you invest with the Bright Directions College Savings Program, you have the potential to benefit from multiple tax advantages that could help you accumulate more dollars for college.
Invest for tomorrow and benefit today.
Your Bright Directions contributions are made with after-tax dollars and earnings grow federally and state tax-deferred while invested. So you don’t have to pay taxes on any earnings while in the Program. Any investment growth is yours to use for college expenses.
When it’s time to use those funds for school, withdrawals can be tax-free if the funds are used for qualified college expenses like tuition, books, and equipment.1
- Any growth is tax-deferred while in the Program.
- Illinois account owners receive significant tax advantages for investing in Bright Directions, including up to an annual $10,000 state income tax deduction ($20,000 for a married couple filing jointly).2
- There is a $500,000 contribution limit for each beneficiary.
Tax Benefits for Illinois
An individual who files an individual Illinois state income tax return will be able to deduct up to $10,000 per tax year (up to $20,000 for married taxpayers filing a joint Illinois state income tax return) for their total, combined contributions to the Bright Directions Advisor-Guided 529 College Savings Program, Bright Start Direct-Sold College Savings Program, and College Illinois 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 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.
Tax benefits for each state
In some states, contributions to any state’s 529 plan are eligible for a state income tax advantage. Out-of-state investors are not required to choose their home state plan to get the benefit but can select any state’s 529 plan, including the low-cost Bright Directions College Savings Program.
ILLINOIS – with the Bright Directions College Savings Program taxpayers can deduct up to $10,000 in contributions from their Illinois taxable income each year ($20,000 if married filing jointly)2
Before investing, investors should consider whether their or their beneficiary’s home state offers any state tax or other state benefits such as scholarship funds, financial aid, and protection from creditors that are only available for investments in such state’s qualified tuition program. Investors should also consult their tax advisor, attorney, or other advisor regarding their specific legal, investment, or tax situation.
Tax-Parity States include: Arizona, Montana, Minnesota, Kansas City, Missouri, Pennsylvania, and Florida
States that offer tax benefits for contributions to any state’s 529 plan.
Tax-Neutral States include: Alaska, California, Nevada, Washington, Wyoming, South Dakota, Texas, Hawaii, Tennessee, Kentucky, North Carolina, Delaware, New Jersey, New Hampshire, Maine
States without state income taxes or other state benefits for investing in that state’s 529 plan.
Tax-Benefit States include: Orlando, Idaho, Utah, Colorado, New Mexico, North Dakota, Nebraska, Oklahoma, Iowa, Wisconsin, Illinois, Arkansas, Louisiana, Mississippi, Alabama, Georgia, South Carolina, Virginia, West Virginia, Ohio, Indiana, Michigan, New York, Vermont, Massachusetts, Rhode Island, Connecticut, Maryland, D.C.
States where income tax benefits are only available for those who pay income tax in that state and own, or contribute to, that state’s 529 plan.
Estate Planning Features
Contributions to an account are considered a gift from the contributor to the designated beneficiary and are generally excludable from the account owner’s taxable estate. Amounts in an account at the death of the beneficiary are includable in the designated beneficiary’s estate.
An account owner’s contributions to an account are eligible for the annual gift tax exclusion, which is currently $15,000 per donee and will increase to $16,000 per donee in 2022. 529 plans also allow for a special gift tax exclusion election. In general, this rule allows you to contribute up to $75,000 for each beneficiary in a single year ($80,000 once the annual exclusion is increased to $16,000 effective January 1, 2022) without federal gift tax consequences—provided that you make no other gifts to the beneficiary in the same year or in any of the succeeding four calendar years. This election needs to be made on a federal gift tax return. Under this rule, your contributions are subject to being added back into your taxable estate in the event of your death within the five-year period. You should consult your tax advisor regarding your situation.3
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