Each year, Illinois taxpayers can deduct contributions made to Illinois 529 plans up to:1
- $10,000 per individual taxpayer
- $20,000 for a married couple filing jointly
The Illinois tax deadline is December 31.
Can I still make a 529 college savings contribution for 2016?
Because it is past December 31, 2016, the answer is no. That was the last day you could open a new Bright Directions account or contribute to an existing account for the 2016 tax year. This is, however, an excellent time to get a jump on 2017.
How can I determine my 2016 contributions for Illinois Income Tax Deduction purposes?
Review any contributions you made in that calendar year. Your December 31, 2016, account statement includes year-to-date contributions, which totals all account contributions received during the calendar year. Here are several important points to consider:
- Your 4th Quarter 2016 statement provides the year-to-date contribution totals for your account. The “YTD Contributions” detail includes all contributions received and invested from January 1, 2016 to December 31, 2016. Please keep the following in mind as you determine the total amount you may be able to deduct on your Illinois state income tax return.
- If you mailed a contribution in late-December 2016 that was invested in January 2017 as a 2016 “Prior Year Contribution,” the contribution would not be on your 4th Quarter 2016 statement because it was not received prior to December 31. Any contributions with a 2016 postmark that were invested in 2017 as “Prior Year Contributions” will be on your 1st Quarter 2017 statement. You will need to add “Prior Year Contributions” for 2016 to the “YTD Contributions” total on your 4th Quarter 2016 statement for Illinois tax deduction purposes.
- You may also need to subtract any contributions that were invested in January 2016 for the previous tax year (2015) to determine the correct amount for your 2016 tax deduction. Any “Prior Year Contributions” for 2015 should be subtracted from the YTD total on your 4th Quarter 2016 statement. Similarly, if family members or friends made contributions to your account, you would also need to subtract those contributions—each contributor is eligible to take the Illinois income tax deduction for contributions they may have made.
- Keep in mind, a contributor does not have to be the Account Owner to take advantage of the deduction. Any family members or friends who are Illinois taxpayers can take the deduction for any contributions they may have made to your account.
- Rollovers: The “YTD Contributions” reported include the full amount of any out-of-state rollovers into Bright Directions. If you rolled over an out-of-state 529 plan to Bright Directions, the “basis” amount (i.e.: the amount you contributed to that out-of-state 529 plan) can be deductible for Illinois state income tax purposes.2 Make sure to reduce the “YTD Contributions” by any earnings portion of a rollover.
Illinois Tax Forms: You will report contributions to Bright Directions on your Illinois Department of Revenue 2016 Schedule M (Step 3 – Line 12) for state of Illinois tax deduction purposes.
Please don’t hesitate to contact us at (866) 722-7283 if you have questions in determining the amount of your 2016 contributions eligible for the Illinois income tax deduction.
1An 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.
2The Illinois Administrative Code provides that in the case of a rollover from a non-Illinois qualified tuition program, the amount of the rollover that is treated as a return of the original contribution to the prior qualified tuition program (but not the earnings portion of the rollover) is eligible for the deduction for Illinois individual income tax purposes.
There may be potential adverse tax consequences if the transfer or rollover is not a qualified rollover. Please review all factors with your tax and financial advisor.