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Year-End Tax Planning: Check State Rules for Potential Triple Tax Advantages
[November 19, 2012]

Year-End Tax Planning: Check State Rules for Potential Triple Tax Advantages

SPRINGFIELD, Ill. --(Business Wire)--

Parents who hope to help their kids afford a college education should consider adding this to their list of year-end tax planning moves:

  • Open or add to a 529 college savings plan.

Depending on their state tax laws, they might be able to take advantage of a potential triple tax-saving bonus.

State-sponsored 529 savings plans are one of the few financial products that can offer triple tax advantages. Earnings grow tax-free over the life of the account, withdrawals are not taxed when used for qualified education expenses1, and - in states that impose personal income tax and offer offsets for contributions to that state's 529 plan - potential for reduced yearly income tax bills. Parents could potentially realize a state tax break up to the maximum state income tax rate.

"For parents committed to saving for their children's education, 529s can be funded with two types of money - cash set aside from paychecks and cash returned in the form of state tax breaks," says 529 industry consultant Andrea Feirstein, managing director of New York-based AKF Consulting Group. "This really can boost their efforts to build up savings in the years before their children head off to college."

Illinois, for example, recently raised its individual income tax rate 67 percent, from 3 percent to 5 percent. The state, though, allows annual contributions to its Bright Start College Savings Plan to be deducted from personal income, lowering the state tax bill by up to 5 percent. Parents who contribute$10,000 realize a "bonus" of $500 in a lowered tax bill.

With the December 31st tax deduction deadline approaching, today's a good day to invest in your child's education. Tax advantages, vary by state. In Illinois,

  • Contributions of up to $10,000 for an individual, or $20,000 if married and filing jointly, can be deducted from your Illinois state taxable income each year
  • You can roll over a 529 plan account from another state and deduct the amount that is treated as a return of the original contribution to the old plan (but not the earnings portion of the rollover).

About Bright Start College Savings:

Bright Start College Savings is a Section 529 education savings program created and administered by the State of Illinois. It allows account holders to save for the cost of education in a Bright Start College Savings account without paying taxes on earnings.


This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.

The Bright Start® College Savings Program is administered by the Illinois State Treasurer's Office and distributed by OppenheimerFunds Distributor, Inc. OFI Private Investments Inc., a subsidiary of OppenheimerFunds, Inc., is the program manager of the Plan. Some states offer favorable tax treatment to their residents only if they invest in the state's own plan. Investors should consider before investing whether their or their designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program and should consult their tax advisor. These securities are neither FDIC insured nor guaranteed and may lose value.

Before investing in the Plan, investors should carefully consider the investment objectives, risks, charges and expenses associated with municipal fund securities. The Program Disclosure Statement and Participation Agreement contain this and other information about the Plan, and may be obtained by visiting or by calling 1.877.43.BRIGHT (1.877.432.7444). Investors should read these documents carefully before investing.

1 Withdrawals for nonqualified expenses are subject to an additional 10% federal tax.

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