Tax Center

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.

Are Contributions Tax Deductible?

Federal Level: Contributions to a 529 plan are made with after-tax dollars, but the earnings grow tax-deferred, and qualified withdrawals are tax-free. There is no federal tax deduction for contributions.

State Tax Deduction Eligibility:

• Illinois Residents: Contributions to Bright Directions are deductible from Illinois state income tax—up to $10,000 per individual or $20,000 for joint filers annually.^{Footnote 1}
• Tax Parity States: Residents of the following states may also qualify for a state income tax deduction or credit, when contributing to Bright Directions:
  • Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio, and Pennsylvania.
    These states offer tax parity, meaning you don’t have to use your home state’s plan to qualify for the deduction. You should consult with your financial, tax or other advisor regarding your individual situation.

Contribution Deadline

To count toward the current tax year, contributions must be made or postmarked by December 31. This applies to all deposits made by check, electronic transfer, rollover from an out-of-state 529 plan, or payroll deduction.

Making contributions before year-end ensures eligibility for any applicable state tax deductions and keeps your savings on track.

What Tax Forms Will I Receive?

If you make a withdrawal from your 529 account, you’ll receive IRS Form 1099-Q. This form reports the total distribution, including earnings and contributions, and is sent in late January following the year of the withdrawal.

Form 1099-Q is issued to:

• The account owner, if the funds were sent to them
• The beneficiary, if the funds were sent directly to the school or beneficiary

Be sure to keep receipts and records of how the funds were used to determine if any portion is taxable.

Will I Receive a Tax Form for My Contributions?

No, you will not receive an IRS tax form (like a 1099) specifically reporting your contributions. However, Bright Directions provides helpful documentation to support your tax filing:

• Contribution Summary: Posted to your account in early February, this summary details all contributions made during the prior calendar year.
• Quarterly Account Statements: Your 4th quarter statement includes year-to-date contributions, which you can compare with your bank records.
• Online Access: You can log in anytime to view your account activity and confirm contribution amounts.

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:

What are Federal Qualified Higher Education Expenses?

Assets in your Account can be used to pay for the Beneficiary’s Federal Qualified Higher Education Expenses, which include:

• Tuition, fees, books, supplies, and equipment required for enrollment or attendance of a Beneficiary at an Institution of Higher Education;
• Room and board expenses (with certain limitations) incurred by students who are enrolled at least half-time;
• Computer equipment, software, and Internet access and related services used primarily by the Beneficiary while enrolled;
• Special needs services in the case of a special needs Beneficiary which are incurred in connection with such enrollment or attendance;
• Apprenticeship Program Costs, including tuition, fees, books, supplies, and equipment required for participation;
• Qualified Education Loan repayments for the Beneficiary or their sibling, subject to a lifetime limit of $10,000 per individual;
• Qualified Elementary and Secondary Expenses^{Footnote 2} (K-12) in connection with the Beneficiary’s enrollment or attendance at an elementary or secondary public, private or religious school, subject to an annual $10,000 (for 2025; $20,000 after 2025) per Beneficiary limit; and
• Qualified Postsecondary Credentialing Expenses^{Footnote 3} such as tuition, testing fees, and materials for approved credential programs.

What are Illinois Qualified Expenses?

Illinois Qualified Expenses includes:

• Tuition, fees, books, supplies, and equipment required for enrollment or attendance of a Beneficiary at an Institution of Higher Education;
• Room and board expenses (with certain limitations) incurred by students who are enrolled at least half-time;
• Computer equipment, software, and Internet access and related services used primarily by the Beneficiary while enrolled;
• Special needs services in the case of a special needs Beneficiary which are incurred in connection with such enrollment or attendance;
• Apprenticeship Program Costs, including tuition, fees, books, supplies, and equipment required for participation; and
• Qualified Education Loan repayments for the Beneficiary or their sibling, subject to a lifetime limit of $10,000 per individual.

Illinois Qualified Expenses* do not include:

• distributions for Qualified Elementary and Secondary Expenses^{Footnote 2}; and
• distributions for Qualified Postsecondary Credentialing Expenses.^{Footnote 3}

*If a withdrawal is made for such purposes, it may be a Federal Qualified Withdrawal and not included in income for federal and Illinois purposes, but if an Illinois 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.