College Savings Options

See the Bright Directions difference

College Savings Options 2016-12-13T13:20:30+00:00

With so many ways to save for college, the amount of information available can be overwhelming. To make things easier, we’ve put together this simple comparison chart showing how Bright Directions stacks up against other savings options.

Key Factors Bright Directions College Savings Program Coverdell Education Savings Account (ESA) UGMA/UTMA
Contribution Limit $400,000 maximum account balance1 $2,000 per beneficiary per year None
Illinois state income tax-deductible contributions Yes
(up to $20,000)2
No No
Change of beneficiary allowed Yes Yes No
Age restrictions for contributions None Before age 183 N/A4
Age restrictions for withdrawals None Before age 303 N/A4
Income restrictions None Yes5 None
529 plans were created by section 529 of the Internal Revenue Code. A 529 college savings plan is a qualified tuition program, sponsored by a state or state agency, designed to allow families a tax- advantaged way to save for college. A 529 college savings account provides federal tax advantages, potential state tax benefits, account control, and investment flexibility. Savings can be used at eligible institutions for qualified education expenses.6
A Coverdell Education Savings Account (ESA) is an account created to help parents and students save for education expenses. The total contributions for the beneficiary of this account cannot be more than $2,000 in any year until the child reaches the age of 18, no matter how many accounts have been established. There are contribution limits for taxpayers based on the contributor’s modified adjusted gross income. Contributions to a Coverdell ESA are not tax-deductible, but any growth in the account is tax-free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) are custodial accounts that allow you to save for your child’s education or for other purposes that benefit the child. Typically, you cannot use the funds for items such as food, housing, clothing, or other parental obligations. A custodial account is used to hold and protect assets for a minor. As a custodial account, the assets are held in the child’s name with an individual serving as custodian. They are irrevocable gifts to the minor. When the beneficiary attains the age of majority (18 or 21 in most states), he or she gains control and can use the funds for any purpose.4 UGMA and UTMA accounts are taxed at the child’s or the parent’s tax rate, depending on the amount of taxable income each year. Check with your tax advisor or investment professional for additional details.

1The combined maximum account balance limit for the Bright Directions College Savings Program and all other Section 529 programs established and maintained by the State of Illinois, including the Bright Start College Savings Program and CollegeIllinois!, for a particular beneficiary cannot exceed $400,000. Although account balances can grow beyond that amount, no additional contributions can be made once the balance reaches $400,000.

2An individual who files an individual Illinois state income tax return will be able to deduct up to $10,000 per tax year (up to $20,000 for married taxpayers filing a joint Illinois state income tax return) for their total, combined contributions to the Bright Directions College Savings Program, the Bright Start College Savings Program, and CollegeIllinois! during that tax year. The $10,000 (individual) and $20,000 (joint) limit on deductions will apply to total contributions made without regard to whether the contributions are made to a single account or more than one account. The amount of any deduction previously taken for Illinois income tax purposes is added back to Illinois taxable income in the event an Account Owner takes a Nonqualified Withdrawal from an Account or if such assets are rolled over to a non-Illinois 529 plan. If Illinois tax rates have increased since the original contribution, the additional tax liability may exceed the tax savings from the deduction.

3Contributions can be made for a beneficiary from birth to age 18. The account may remain open until the beneficiary reaches age 30, with certain limitations.

4Custodianship typically terminates when a minor reaches age 18 or 21.

5ESA eligibility phases out at $95,000–$110,000 adjusted gross income ($190,000–$220,000 for joint filers). Please check with your tax advisor for details and information regarding your specific situation.

6Withdrawals used to pay for Qualified Higher Education Costs are free from federal and Illinois state income tax. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses incurred by students who are enrolled at least half-time; the purchase of computer or peripheral equipment, computer software, or Internet access and related services, if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution; and certain expenses for special needs services needed by a special needs beneficiary.