What Are the State Income Tax Advantages?

Legislation governing the tax treatment of the Accounts was passed by the Illinois General Assembly in 2000, and became effective as of January 1, 2001. Illinois law provides that, effective January 1, 2001, the assets of the Program and its income are exempt from all taxation by the State of Illinois and any of its subdivisions and that the accrued earnings on investments in the Program disbursed on behalf of a Beneficiary are exempt from all taxation by the State of Illinois and its subdivisions, so long as they are used for the Beneficiary’s Higher Education Costs. You should consult your tax advisor regarding the Illinois state income tax treatment of investments under the Program.

For tax years beginning on or after January 1, 2005, individuals who file individual Illinois state income tax returns will be able to deduct up to $10,000 per tax year for their total, combined contributions to the Program, to the Bright Start College Savings Program, and to College Illinois! during that tax year. The Illinois Department of Revenue has stated, in informal advice that is not binding on the Department, that

a deduction of up to $20,000 will be permitted for married taxpayers filing joint Illinois State income tax returns for their total, combined contributions to the Program, to the Bright Start College Savings Program, and to College Illinois! during that tax year, and
the $10,000 (individual) and $20,000 (joint) limitations on deductions will apply to the total contributions made to the Program, to the Bright Start College Savings Program, and College Illinois! without regard to whether the contributions are made to a single account or more than one account.

A contribution must be post-marked no later than December 31st of a tax year in order to be eligible to be deducted with respect to such tax year. The Illinois Department of Revenue has stated (in a non-binding general information letter) that the state income tax deduction is available to any individual who contributes to an Account and files an Illinois state income tax return. The deduction for Illinois individual income tax purposes for contributions to the Program does not apply to transfers between accounts of different designated beneficiaries or rollovers from other qualified tuition programs. The Illinois Department of Revenue has stated (in informal guidance that is not binding on the Department) that in the case of such a rollover, the amount of the rollover that is treated as a return of the original contribution to the old plan (but not the earnings portion of the rollover) is eligible for the deduction for Illinois individual income tax purposes.

For taxable years beginning on or after January 1, 2007, Illinois law provides for the recapture of Illinois state tax benefits in the event an Account Owner rolls over an Account to an out-of-state qualified tuition program. The adjusted gross income of an Illinois taxpayer who rolls over an Account to an out-of-state qualified tuition program will be increased by the amount of money the Account Owner has previously deducted from his or her Illinois base income for contributions made to the Program. Before rolling over your Account to an out-of-state qualified tuition program, you should consult with your legal and tax advisors.

For taxable years beginning on or after January 1, 2007, the earnings portion of distributions from non-Illinois qualified tuition programs are no longer subject to Illinois income tax so long as the non-Illinois qualified tuition program adopts and determines that its offering materials comply with the College Savings Plan Network’s disclosure principles and has made reasonable efforts to inform Illinois residents and financial intermediaries distributing the non-Illinois program of the existence of Illinois qualified tuition programs.

You should be aware that your state or your Beneficiary’s state may sponsor its own qualified tuition program and may offer a state tax deduction or other benefits that are limited to residents who invest in or are beneficiaries of that program. You should consult with your tax advisor about such state tax treatment or other benefits before making an investment decision.

Investment Products: Not FDIC Insured. No Bank Guarantee. May Lose Value.

The Bright Directions® College Savings Program is part of the Illinois College Savings Pool and is designed to qualify as a qualified tuition program under the provisions of Section 529 of the Internal Revenue Code. The Bright Directions® College Savings Program is sponsored by the State of Illinois and administered by the Illinois State Treasurer, as Trustee. Union Bank & Trust Company serves as Program Manager, and Northern Trust Securities, Inc., acts as Distributor.

Securities, products, and services are offered by Northern Trust Securities, Inc., member FINRA.

You should be aware that other states may sponsor their own qualified tuition plans and may offer a state tax deduction or other benefits that are limited to residents who invest in that plan. You should consult with a tax advisor about state and local taxes.

Withdrawals used to pay for qualified higher education expenses are income tax-free (Federal and State of Illinois). Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment at a qualified institution of higher education. Room and board is considered a qualified higher education expense if the student is enrolled on at least a half-time basis.

Every individual’s tax situation is different, and it is important to consult a qualified tax advisor regarding the application of the Program’s benefits to your own individual situation.

There is no guarantee that any investment portfolio will achieve its investment goals. The value of an account will go up or down based on the performance of the Portfolio in which the account is invested. When funds are withdrawn, they may have more or less than the total contributions made to the account. Past investment performance is no guarantee of future results.

Investments in the Bright Directions® College Savings Program are not guaranteed or insured by the State of Illinois, the Illinois State Treasurer, Union Bank & Trust Company, Northern Trust Securities, Inc., the Federal Deposit Insurance Corporation, or any other entity. An investor should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities and the underlying investment companies before investing. Please contact your investment professional or call 866–722–7283 to obtain a Program Disclosure Statement (issuer’s official statement) or prospectus for any of the underlying funds. Please read the Program Disclosure Statement carefully prior to investing.