Illinois residents can invest in almost any state’s 529 plan, but they are eligible for a state income tax deduction if they contribute to an in-state plan. Illinois administers two 529 plans, the Bright Start Direct-Sold College Savings Program and the Bright Directions Advisor-Guided College Savings Program, and one prepaid tuition plan, the College Illinois Prepaid Tuition Program.
Illinois’ prepaid tuition plan is currently closed to new enrollment due to funding issues. But, Illinois families may invest in either or both of the state’s 529 college savings plans. The Bright Start 529 plan is a direct-sold 529 plan that received a Gold rating from Morningstar in October 2019. The Bright Directions 529 plan was among the top 10 advisor-sold 529 plans for the 3- year period ended September 30, 2019 according to Savingforcollege.com’s quarterly 529 plan rankings.
Illinois 529 plan state income tax deduction
Illinois residents who use an in-state 529 plan may deduct up to $10,000 ($20,000 if married filing jointly) of annual contributions from Illinois taxable income. Eligible contributions include the principal portion of a rollover contribution. All Illinois residents are eligible for the state income tax deduction, regardless of whether or not they own the 529 plan account.
Illinois also offers a state income tax benefit for employers who match employee contributions to an Illinois 529 plan account. Employers may claim a state income tax credit of up to 25% of matching contributions per employee, with an annual maximum credit of $500 per employee.
A state income tax benefit should not be the only consideration when selecting a 529 plan. Families should also compare fees, investment options and historical performance of out-of-state 529 plans.
How to enroll in an Illinois 529 plan
Illinois families can open a Bright Start College Savings account by completing an application online. The 529 plan account owner must provide their name, Social Security Number (SSI) or Individual Taxpayer Identification Number (ITIN), date of birth, mailing address, telephone number and email address, and the beneficiary’s SSI or ITIN and date of birth.
Illinois families who are looking for professional guidance on college savings might consider the Bright Directions advisor-sold 529 plan.
Which Illinois 529 plan should you choose?
Illinois residents are eligible to claim a state income tax deduction for contributions to any in-state 529 plan. The biggest difference between Illinois’ two 529 college savings plans is that the Bright Start plan is a direct-sold 529 plan and the Bright Directions plan is an advisor-sold 529 plan. Direct-sold plans generally have lower fees than advisor-sold plans. This is partly because advisor-sold 529 plans charge a sales commission based on the share class selected. Advisor-sold plans are also more likely to include actively managed funds, which have higher fees than passively managed index funds.
But, with a direct-sold 529 plan, the account owner is responsible for the investment selection and asset allocation. Both Illinois 529 plans offer age-based portfolios, which start out heavily invested in riskier investments such as stocks and ETFs and automatically move toward more conservative options to reduce risk as the beneficiary gets closer to college. This is a good option for investors who prefer a "set it and forget it" strategy for their college savings. Other options that do not automatically adjust allocations include target portfolios that aim to meet an investment objective based on a desired level of risk, and individual fund options.
The following table highlights the features offered by the Illinois Bright Start direct-sold 529 plan and the Bright Directions advisor-sold 529 plan.
(total asset-based expense ratio)
Investment Fund Families
5-Cap Rating (residents)
Bright Start Direct-Sold College Savings Program
Vanguard, T. Rowe Price, DFA, Dodge & Cox, BlackRock, Baird Funds, Ariel Investments, Oppenheimer Funds, Dreyfus, Nuveen, PGIM Investments
Bright Directions Advisor-Guided College Savings Program
1.36% - 1.86%
T. Rowe Price, DFA, Dodge & Cox, PIMCO, BlackRock, American Century, Baird Funds, MainStay Investments, Delaware Funds, Harbor Funds, Northern Funds, William Blair, Calvert, Templeton, Causeway, Ariel Investments, MFS, Invesco, Oppenheimer Funds, PGIM, American Beacon, Fidelity, Principal, Sit Mutual Funds and Vanguard (Class F only)
Source: Savingforcollege.com data