Education Planning

When you are facing expenses as large as college and graduate school tuitions, you want to consider all of your savings options. Here are a few of the most common types of investments that are commonly used for education planning. Contributing to one type of plan doesn’t prevent you from using another, and every plan has pros and cons. Picking the right plan for your situation is what we do. Here are the most common education savings options and a brief description, for more information please let us know.

529 Plans

A 529 plan is the most common and easiest way to save for education expenses. In a 529 plan your money grows tax deferred and can be withdrawn tax free for qualified education expenses. Each state has their own sponsored 529 plan, but no individual is required to use their specific states plan to get the federal tax free growth. Most 529 plan contribution minimums start at $25, but can go as high as several hundred thousand dollars. Each state usually has a specific advantages if you live in state and use their plan. For example, the state of Illinois offers a state tax deduction up to $20,000 per family per year if you use their plan. Money accumulated in all 529 plans can be used at any accredited college or university regardless of residency.

Education Savings Accounts

A Coverdell education savings account (ESA) offers the benefit of tax free withdrawals to pay qualified education expenses. Currently you can contribute up to $2000 each year to an account setup for a specific beneficiary. One of the most distinctive differences between an ESA and a 529 plan is that earnings in an ESA plan may be used to pay qualified expenses for students in grades K-12 as well as those in college and graduate school. ESA’s are not sponsored by any specific states.



UGMA’s & UTMA’s

Under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) you may establish an account in a child’s name. Since a minor can’t own assets in his or her own name, you or someone you designate serves as custodian of the account until the child reaches majority. There are no limits on the way that you can invest the assets on a UGMA account. There is no income cap on who can contribute, and no contribution cap on the amount you can add to the account. Currently earnings are taxed at the parents rate until the child is 19 or 24 if he or she is a full-time student. In addition, the assets belong to the child and a substantial account balance could reduce the eligibility for financial aid.

US Savings Bonds

US Savings Bonds may also provide tax free earnings for college expenses, though your adjusted gross income must be lower than the cap Congress sets for the year that you withdraw to qualify. There is no way to predict that amount, but even if you don’t get the tax break you can use the interest you earn any way you like.

Taxable Investing

Of course, you can always save for college by opening a taxable account, and earmarking those funds to meet that goal.

State of Illinois Bright Start Advisor Plan Information

Bright Start is a Section 529 college savings plan sponsored by the state of Illinois and sold nationwide to help families save for the future costs of higher education. In 1999, the Illinois Treasurer’s Office created the plan specifically to give families a powerful combination of tax benefits, flexibility and professional investment management.

Any individual, regardless of age, income or state residency can open or contribute to a Bright Start Account.

Why Choose Bright Start?

In addition to all the benefits that come with 529 plans, Illinois’ Bright Start College Savings Program offers:

Investment Management Expertise

Bright Start offers a range of portfolios designed to help you and your financial advisor find the right fit for your savings goal, financial situation and risk tolerance. You can choose to invest in the Age Based Portfolios, the Choice Based Portfolios or a combination of the two. The portfolios are managed by OFI Private Investments, Inc., a subsidiary of OppenheimerFunds, Inc. and its affiliates, and American Century Investments®.

Wide Range of Portfolios to Choose From

Bright Start offers 10 investment portfolios that range from aggressive to very conservative. You can choose from the age based option, the choice based option or a combination of the two.

Low Fees Allow You to Earn More

Bright Start is among the most affordable 529 plans in the nation. Costs range from 0.48% to 1.21% for portfolios.

An Easy Way to Open and Maintain Your Account

Simply print out an application and mail it in. You can also manage your investments online at your convenience.

Low Account Minimums and High Maximums

You can open a Bright Start account for as little as $25. You may contribute up to $320,000 per beneficiary.2

The Convenience of Automatic Investing

Making contributions to your 529 Plan is easy with an Automatic Investment Plan (AIP).1 Any amount you designate is automatically transferred into your 529 Account on a periodic basis.

Tax Advantages for Illinois Residents

In addition to federal tax benefits, if you are a resident of Illinois, you can enjoy state tax benefits as well:

  • Your plan contributions are deductible from your Illinois state taxable income, up to $10,000($20,000 if married and filing jointly3) per year, including the contribution (but not earnings) portion of rollovers from other state 529 plans3
  • Any earnings grow Illinois state tax free
  • Qualified withdrawals are exempt from Illinois state tax
  1. These plans do not assume a profit or protect against losses in a declining market.
  2. All 529 plan assets, including earnings, established for the benefit of a particular beneficiary must be aggregated when applying this limit. New contributions will not be allowed once this limit is reached but earnings will continue to accrue. Consult your tax advisor for information on how 529 tax treatments would apply to your particular situation.
  3. Based on informal guidance from the Illinois Department of Revenue that is not binding on the Department.