529 PLAN FREQUENTLY ASKED QUESTIONS

A list of questions related to the category you selected are listed below. To select another category of FAQs, you may click the category buttons to your left.

Frequently Asked Questions - Tax Advantages & Implications

1. What are the income tax advantages of a College Illinois! 529 Prepaid Tuition Program contract?
   
   As long as benefits are used for education, the increased value of a College Illinois! 529 Prepaid Tuition Program plan is 100% exempt from federal and Illinois state income tax.
   
   Individuals subject to Illinois state income tax can deduct from their taxable income up to a maximum of $10,000 per year for contributions made toward the purchase of any College Illinois! 529 Prepaid Tuition Program contract. Married couples filing jointly can deduct up to $20,000 per year.* This state tax deduction reduces the individuals' adjusted gross income (AGI) by the amount contributed up to $10,000 (or $20,000 for those filing jointly).
   
   An annual statement sent by the program to account owners each year in January summarizes the contributions made during the tax year. Illinois tax form IL-1040 requires that Schedule M be attached to take the state tax deduction. More information is available from the Illinois Department of Revenue at http://www.revenue.state.il.us
   
   New as of 2009: The College Savings Employer Participation Initiative offers a new incentive for employers and their employees to contribute to the State of Illinois 529 savings and prepaid tuition programs. Illinois employers can now claim a tax credit of up to $500 per contributing employee for one-fourth of the amount contributed each year toward employee 529 tuition plans.
   
   * The limit on the state tax deduction applies to combined contributions to The College Illinois! 529 Prepaid Tuition Program, the Bright Start Savings program, and the Bright Directions program.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
2. Can I contribute to a 529 savings plan, a Coverdell Education Savings Account and a College Illinois! 529 Prepaid Tuition Program plan at the same time?
   
   Contributions can be made to a College Illinois! 529 Prepaid Tuition Program plan, a 529 savings plan, and a Coverdell Education Savings Account in the same taxable year for the same beneficiary.
   
   Federal law allows the contribution of $2,000 per year per child to a Coverdell Education Savings Account. For those contributing to several 529s, it is important to limit total contributions in all plans to the maximum amount that will be required for the beneficiary’s total higher education expenses. If more funds are held in 529 plans than can be withdrawn at a later date for qualified higher education expenses, there will likely be tax penalties.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
3. How are the College Illinois! 529 Prepaid Tuition Program plans treated under federal estate tax laws?
   
   If a successor purchaser is designated on the application or at a later time, a College Illinois! 529 Prepaid Tuition Program plan will not be subject to federal inheritance tax paid on the purchaser's estate.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
4. What are the tax consequences of a cancellation, refund or transfer?
   
   Transferring a College Illinois! 529 Prepaid Tuition Program contract to another purchaser or beneficiary should create no tax consequences. If interest is included with a cancellation or refund paid to a purchaser, income taxes may be due on the earnings portion of the refund as well as a 10% federal withdrawal penalty if the money is not being used for a qualified higher education expense. If the refund is due to death, disability or receipt of a scholarship, tax penalties will not apply but income tax may be due on the plan earnings if the refund is not used for a qualified higher education expense.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
5. How are College Illinois! 529 Prepaid Tuition Program plans treated under federal gift tax laws?
   
   Section 529 provides that payments to the program are treated as a completed gift of present interest for federal gift tax purposes. Section 529 also provides a five-year averaging provision for any contributions in one taxable year that are greater than the annual allowable exclusion from federal gift tax, currently $13,000 ($26,000 for married couples filing jointly) in 2009. This means that if a contribution by one individual to a single Beneficiary in any one tax year is greater than $13,000 ($26,000 for married couples filing jointly) in 2009, the Purchaser may elect to average the amount of the gift over a five-year period. Please contact a tax professional or the Internal Revenue Service to determine how to make the five-year averaging election on IRS Form 709.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
6. Can I roll over funds from other education savings funds?
   
   You may roll over funds from another 529 Qualified Tuition Program to the College Illinois! 529 Prepaid Tuition Program for the same beneficiary once every 12 months without federal tax consequences. You may roll over funds at any time without tax consequences if you change the beneficiary to a member of the family, as defined by the IRS to include virtually any relative of the previous beneficiary. You may also transfer funds from a Coverdell Education Savings Account or certain qualified U.S. savings bonds to the College Illinois! 529 Prepaid Tuition Program without negative tax consequences. Qualified U.S. savings bonds are any Series EE bonds issued after 1989 and all Series I bonds. Additional age and income limits apply. For more information, visit www.savingsbonds.gov.
   
   Once the College Illinois! 529 Prepaid Tuition Program account is established, you must request the transfer of funds from the other institution. Then, you need to complete our Roll Over Form and provide it along with documentation from the transferring institution that shows the earnings portion of the roll over. If you do not provide this information, the entire roll over will be treated as earnings. In order to retain the tax-free treatment of the roll over, all withdrawals must be transferred to the College Illinois! 529 Prepaid Tuition Program within 60 days of the initial withdrawal.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
7. Can I transfer funds from my child's UGMA/UTMA account to the College Illinois! 529 Prepaid Tuition Program?
   
   Since every situation is unique, the College Illinois! 529 Prepaid Tuition Program recommends that you speak to a professional tax advisor before liquidating Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) assets to fund a College Illinois! 529 Prepaid Tuition Program plan. If you do choose to use UTMA/UGMA assets for the College Illinois! 529 Prepaid Tuition Program, you will need to submit an UTMA/UGMA Form acknowledging your responsibility to maintain the custodial status of the assets and releasing the College Illinois! 529 Prepaid Tuition Program from liability associated with the transfer of funds. Certain restrictions apply to the treatment and ownership of a College Illinois! 529 Prepaid Tuition Program plan when custodial funds are involved.
   
   Please see Master Agreement and Disclosure Statement for more details. The College Illinois!® 529 Prepaid Tuition Program cannot provide purchasers with any legal or tax advice. Purchaser should consult their own tax advisor concerning federal and state tax implications of purchasing a contract.
   
   
8. Where can I find more IRS tax information for higher education?
   
   Tax information is available from the Internal Revenue Service (IRS) at their toll-free number 1-800-829-1040 or on their web site www.irs.ustreas.gov. Publication 970 - "Tax Benefits for Higher Education" addresses a variety of education tax benefits and can be downloaded from the IRS web site.