Tax Center

Where is my 2023 Tax Form?

IRS Tax Form 1099­-Q is issued only when a withdrawal is requested during the year (please see the next Q&A for information on Year­-to­-Date contributions for 2023). The 1099­-Q tax forms will be mailed at the end of January and will also be posted on the Bright Directions web site. To access them on the Bright Directions site – here are the steps:

1. Log into your account
2. Once logged in to your account click on the “Statements & Tax Forms” menu
3. On this page you will have the ability to select several “Document Types” – you will want to select Tax Forms (1099-Q):
   1. Account Statement
   2. Contribution Summary
   3. Tax Forms (1099-Q)
   4. Trade Confirms

Where can I get the full year 2023 contribution amount for taxes?

2023 Contributions for Illinois state income tax purposes: We’ve included 2023 contribution information for you on your December 31, 2023 account statement (located below the pie chart on your statement). Contributions are reported on a cash basis so if you made any contributions online at the end of December 2023 or by mail with a late December 2023 postmark you will want to see if they were included in the transaction activity on your December 31st statement or if we received them and posted them in January 2024 as a “Prior Year” contribution. A 2023 postmarked contribution invested in January 2024 as a “Prior Year” contribution should be eligible for the 2023 Illinois tax deduction. Likewise, make sure to review your 1st quarter 2023 account statement for any “Prior Year” contributions for 2022 that you would need to adjust for.

PLEASE REVIEW to your records to match your total contributions. The year-­to-­date contribution amount we report will also include contributions to your account by others (those generally would be deductible by the contributor versus you). Also, keep in mind ONLY the basis or contribution portion of an out-­of-­state rollover is deductible (the earnings portion cannot be deducted).

What is the limit for the Illinois state income tax deduction?

Individuals who file an Illinois state income tax return are eligible to deduct up to $10,000 per tax year ($20,000 for married taxpayers filing jointly) for total combined contributions to an Illinois 529 plan.

Who can take the Illinois state income tax deduction?

The Illinois state income tax deduction is available to an individual who contributes to an
Account and files an Illinois state income tax return.

What is the deadline to contribute to take advantage of the Illinois state income tax deduction?

Contributions may be completed online or mailed. Contributions that are mailed must be postmarked to Bright Directions no later than December 31, 2023 to be eligible for a 2023 deduction. Electronic contributions must be completed by 11:59pm Central Time on December 31 to be considered a 2023 contribution.

Any contribution made after 3pm CT on December 29th but before 11:59pm CT on December 31st will post to your account on January 2nd, 2024, but will be coded “Prior Year Contribution” and generally should be eligible for the 2023 state income tax deduction.

Contributions addressed to Bright Directions and postmarked in 2023 but received in 2024, will be invested on the day the check is received – will be coded as a “Prior Year Contribution” and will be considered a 2023 contribution for tax deduction purposes.

Will you send me a form showing my contributions so I can take the Illinois state income tax deduction?

In order to take the Illinois state income tax deduction for your contribution, you would simply need to provide your tax preparer with a copy of your canceled check or bank statement. Any Illinois taxpayer who makes a contribution to a Bright Directions account should be eligible to take advantage of the state income tax deduction. It is our understanding that Illinois Schedule M is where tax deductible contributions to Bright Directions are to be reported for Illinois state income tax purposes.

If I make an accelerated gift for Federal Gift Tax purposes this year, will I be able to take the Illinois state income tax deduction in each of the next 4 years for that contribution?

It is our understanding that you may take the Illinois state income tax deduction only in the year that the contribution was made. The Illinois state income tax deduction does not carry forward to future years for an accelerated gift. You will want to consult your tax or financial professional for more information regarding a large gift and any tax considerations that should be considered.

Do rollovers from an out-­of-­state 529 plan count for the Illinois state income tax deduction?

The contribution, or basis, portion of a rollover from a non­-Illinois 529 plan is eligible for the Illinois state income tax deduction, but not the earnings portion. In order for the rollover contribution to be considered for Illinois state income tax deduction purposes, the rollover check needs to be dated 2023 and the envelope with the rollover check from your previous 529 plan needs to have a 2023 postmark. Please note, the eligibility for the state tax deduction is based on when we receive the rollover check – not the completed rollover request form.

I need to take a withdrawal from my account.

We recommend matching your qualified expenses and 529 withdrawals in the same calendar year for tax purposes.

To request a withdrawal from an account:

1. Log into your account online and select the “Withdraw” button to walk through the easy steps.
2. Complete and submit the Withdrawal Request Form

We recommend that you keep all receipts, invoices, or any other documentation of the expenses in the event there are ever questions in the future. You do not need to provide Bright Directions with any receipts when you request a distribution. If you are ever audited, you will need to provide the documentation of what the withdrawn funds were used for.

You should consult with your financial, tax or other advisor regarding your individual situation.

The earnings portion of a nonqualified withdrawal may be subject to federal and state income taxes, a 10 percent federal tax penalty, and Illinois may recapture prior tax deduction benefits. Please consult your tax advisor.

View IRS Publication 970 for additional details.

Each year, Illinois taxpayers can deduct contributions made to Illinois 529 plans up to:¹

• $10,000 per individual taxpayer
• $20,000 for a married couple filing jointly

The Illinois tax deadline is December 31.

If you made larger gifts (i.e.: typically over $15,000), don’t forget to mention them to your tax professional so they can determine if any special IRS filings are required. If you took advantage of the special five ­year, front­ loading election allowed for 529 plans, please notify your tax professional so they can prepare any necessary Gift Tax Return. The due date for filing is April 15.

If you will be receiving a federal or state tax refund, consider investing it into your Bright Directions 529 account. Your federal and Illinois tax forms provide a section allowing you to deposit all or part of your refund directly into a bank account.

Here is the information you will need when completing the “Refund – Direct Deposit” section of your federal and/or Illinois tax returns:

Qualified Higher Education Expenses (Source: IRS Publication 970 – January 2021)

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.

1. 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.
   1. Tuition and fees.
   2. Books, supplies, and equipment.
2. 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.
3. 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.
   1. 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.
   2. 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.

4. 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.)
5. The 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.
6. 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 tax free because they were used to pay student loan interest.

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 workload for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled.

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.

View IRS Publication 970 for additional details.https://www.irs.gov/pub/irs-pdf/p970.pdf;

*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. 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.

Did you request a withdrawal from your Bright Directions account? If yes, we will provide IRS Form 1099­Q (mailed by Bright Directions before January 31 of the following year). The 1099­Q is a report showing the total amount of all withdrawals requested to the same payee as well as the principal and earnings portions of those withdrawals.¹

The Account Owner will receive the 1099-Q if the check was payable to the Account Owner.

The Beneficiary receives the 1099-Q for any withdrawals paid to the Beneficiary or to the School.

We recommend that you keep the receipts and documentation of your college expenses with your tax paperwork in the event there are any questions about the amount you have withdrawn. You should discuss any tax reporting requirements with your tax professional.

If you receive a refund from an Eligible Educational Institution for Qualified Higher Education Expenses that were paid from money withdrawn from your Account, you could:

1. Other Qualified Higher Education Expenses – you can use the funds to pay other Qualified Higher Education Expenses incurred by that Beneficiary in the same calendar year.
2. Recontribution of Refunded Amounts – if a student receives a refund of Qualified Higher Education Expenses that were treated as paid by a 529 distribution, the student can recontribute these amounts into any 529 account for which they are the beneficiary within 60 days after the date of the refund. The amount recontributed cannot exceed the amount of the refund.

You should consult with your financial, tax or other advisor regarding your individual situation.

The tax benefits afforded to 529 plans must be coordinated with other programs designed to provide tax benefits for meeting higher education expenses to avoid the duplication of such benefits. You should consult with a qualified tax advisor with respect to the various education benefits.

Taxable Portion of a Distribution
The part of a distribution representing the amount paid or contributed to a qualified tuition program doesn’t have to be included as income. This is a return of the investment in the plan. The designated beneficiary generally doesn’t have to include any earnings distributed from a qualified tuition program as income if the total distribution is less than or equal to adjusted qualified education expenses. To determine if your total distributions for the year are greater or less than the amount of qualified education expenses, you must compare the total of all qualified tuition program distributions for the tax year to the adjusted qualified education expenses. Adjusted qualified education expenses are the total qualified education expenses reduced by any tax-free educational assistance. Tax-free educational assistance includes: the tax-free portion of scholarships and fellowship grants; veterans’ educational assistance; the tax-free portion of Pell grants; employer-provided educational assistance; and any other tax-free payments (other than gifts or inheritances) received as educational assistance.

Coordination with American Opportunity and Lifetime Learning Credits
An American Opportunity or Lifetime Learning Credit can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program if the same expenses are not used for both benefits. This means that after the beneficiary reduces qualified education expenses using tax-free educational assistance, he or she must further reduce them by the expenses taken into account in determining the credit.

Coordination with Coverdell Education Savings Account Distributions
If a designated beneficiary receives distributions from both a qualified tuition program and a Coverdell Education Savings Account in the same year and the total of these distributions are more than the beneficiary’s adjusted qualified higher education expenses, the expenses must be allocated between the distributions. For purposes of this allocation, disregard any qualified elementary and secondary education expenses.

Coordination with Tuition and Fees Deduction
A tuition and fees deduction can be claimed in the same year the beneficiary takes a tax-free distribution from a qualified tuition program if the same expenses are not used for both benefits.