State tax benefit for 529 Plan?

Question

We live in ILLINOIS (IL).

Both couple AGI is 100K

If we start a 529 college savings plan for our kid ( 8 years old)

Contribute around 10K every year for next 10 years towards 529 plan ( IL college savings )

Currently in 25% federal tax bracket.

IL does give tax deduction if you pick there IL 529 plans.

Just wondering how much of tax savings will I be getting every year if we choose IL 529 plan ?

This will help me decide whether to choose IL 529 plan or some other out of state plan.

Answer 1

So I will have only state tax benefit (IL) 5%

If we contribute 10K every year which is a savings of $500/year which is 5K for 10 year contribution to 529 college savings plan for Illinois.



So for next 10 years I will save $5K if we take our in-state 529 Plan.



Now how to calculate what other out of state 529 plans give me more than 5K savings ?

Answer 2

Il 529 Plan

Answer 3

There are many factors to consider with any 529 plan besides tax breaks. While those are important you must really consider the plans fee structure and expected returns on your investment. Other states may have superior plans and lower fees for their 529 plans. Your tax savings for IL would depend on the IL tax structure. I am not aware of any potential tax savings on the federal level as you are basically gifting the $10k to your child. The federal tax issues will start when your child is in college and you will not have to pay income taxes on the increase in the value of the 529 plan provided you spend it on allowable expenses.

Answer 4

IL is a flat 5% state tax.



There is no federal deduction for 529 contributions.

Answer 5

I am not in Illinois but I found this:



Line 12 - Schedule M.



Line 12 — Contributions you made to “Bright Start” and

“Bright Directions” College Savings Pools and “College

Illinois” Prepaid Tuition Program

Write the amount of contributions you made during the tax year to

the “Bright Start” and “Bright Directions” College Savings Pools and

the “College Illinois” Prepaid Tuition Program. You may also subtract

contributions made on your behalf to one of these plans by your

employer. You may not subtract contributions made to any other

college savings program. If your contributions were made by rolling

over funds from another college savings program into a “Bright Start,”

“Bright Directions,” or “College Illinois” account, you may not subtract

any income that was earned in the other savings program and rolled

over into your Illinois account.

The total of Lines 12a, 12b, and 12c may not exceed $10,000

($20,000 if married filing a joint return).





Illinois has a flat 5% tax so a $20,000 contribution (the max) would save you $1000 on your state tax return.

Answer 6

obviously Ill has a separate plan than most and if this works for you great

the problem I have with these savings plans, the money is required to be used for education

when the kid is ready to go to school, he may not want to or be included to apply himself to this $100K investment you have made

when I realized this and no federal tax benefit I chose not to open accounts for my great granddaughters

Answer 7

Sure does sound like Wayne Z has it for you for the state college savings plan at this time.

Hope that you find the above enclosed information useful. 12/31/2014

Answer 8

The benefit is that the money is taken pre tax from your checks. You will have $10K less taxable income yearly, and at 25% rate, that's $2500 tax savings