Are 529 Contributions Tax Deductible in Illinois?

Yes, 529 contributions are tax deductible in Illinois.

State Income Tax Deduction

Illinois taxpayers can deduct up to $10,000 of 529 contributions per year ($20,000 for joint filers) from their state income taxes. This deduction is phased out for taxpayers with adjusted gross incomes (AGIs) above certain thresholds:

Federal Income Tax Treatment

529 contributions are not deductible from federal income taxes. However, earnings on 529 plans grow tax-free and are not subject to federal income tax when used for qualified education expenses.

Other Benefits of 529 Plans

In addition to the state income tax deduction, 529 plans offer several other benefits:

• Tax-free investment growth: Earnings on 529 plans grow tax-free, regardless of the duration of ownership.
• Flexible investment options: 529 plans typically offer a variety of investment options, including mutual funds, index funds, and exchange-traded funds (ETFs), to help meet your specific investment goals.
• Easy account management: 529 plans can be managed online or through financial advisors, making it convenient to track your investments and make changes as needed.
• No age limits: 529 plans can be used to save for education expenses at any age, from college to graduate school.

How to Contribute to a 529 Plan

There are several ways to contribute to a 529 plan:

• Directly through the plan provider: You can open an account with a 529 plan provider and make contributions directly from your checking or savings account.
• Through a payroll deduction: Some employers offer 529 payroll deduction plans, allowing you to contribute pre-tax dollars to your 529 account.
• As a gift: Family members and friends can contribute to your 529 plan as gifts. Gifts are excluded from the annual contribution limit but may be subject to gift tax considerations.

Conclusion

529 contributions are a great way to save for future education expenses with tax-advantaged benefits. If you are an Illinois resident, you can take advantage of the state income tax deduction for 529 contributions to further reduce your tax burden. However, it's important to note that 529 contributions are not deductible from federal income taxes.

Additional Resources:

• Illinois Student Assistance Commission: 529 Plans
• Internal Revenue Service: 529 Plans