Saving for College
May 2021 Treasurer’s Note by Treasurer Michael Frerichs
At the Illinois State Treasurer’s Office, we often talk about providing tools to help people achieve their American Dream.
One of these tools helps families save for college. Our Bright Start and Bright Directions college savings plans are rated among the best in the country by Morningstar, an independent research and financial services firm.
The federal government allows families to save for college in tax-advantaged vehicles called 529 College Savings Plans. The goal is to make each dollar saved more valuable through tax-deferred compounding and tax-free withdrawals when used for qualified expenses. How valuable is this tax benefit? By using a 529 plan, savers avoid capital gains taxes — taxes charged on the growth in value of investments such as stocks and bonds.
Illinois is among more than 30 states and the District of Columbia that further boosts the value of college savings by offering state-level tax benefits for investing in a 529 plan. In Illinois, taxpayers filing single may deduct up to $10,000 in Illinois 529 contributions from their Illinois taxable income. Taxpayers married filing jointly may deduct up to $20,000.
College is expensive. It also can be costly to pursue training through an apprenticeship, vocational school, or a technical school. As our economy evolves, these educational and training courses are vital to pursue careers that earn a decent wage and lift a family into the middle class and beyond.
It is never too late to start saving. A Bright Start college savings account can be opened by an individual. A Bright Directions account can be opened with the help of a financial advisor. Both provide a path to someone’s American Dream, and both offer ways that show the Illinois State Treasurer’s Office is Invested in You.
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