Illinois' state treasurer reminded new parents this week they can claim a $50 deposit for their child's college savings account under the state's new Bright Start program.
State Treasurer Michael Frerichs said anyone who had a baby or adopted a child in 2023 can open a Bright Start or Bright Directions college savings account and receive a $50 seed deposit from the Illinois First Steps program.
“We launched the Illinois First Steps program this year to help put families on a path to saving early for their child’s education,” Frerichs said in a statement. “Saving now means money will be available when your child is ready to attend a university, community college, trade school, or start an apprenticeship.”
Here's what to know:
Who qualifies for the program?
In order to qualify, parents or legal guardian will need to claim the deposit before their child's 10th birthday. They must also have been Illinois residents at the time of their child's birth or adoption and the child must have been born or adopted on or after Jan. 1, 2023.
What are the Bright Start and Bright Directions programs?
Local
The Bright Start and Bright Directions programs are 529 college savings programs, which are set to see some big changes in 2024.
That's because, starting in 2024, families can roll unused money from 529 plans over to Roth individual retirement accounts - free of income tax or tax penalties.
Feeling out of the loop? We'll catch you up on the Chicago news you need to know. Sign up for the weekly Chicago Catch-Up newsletter here.
What is a 529 college plan?
According to the U.S. Securities and Exchange Commission, "a 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs."
Also known as "qualified tuition plans," 529 plans "are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code."
There are often two types of 529 plans: education savings plans and prepaid tuition plans.
"Most education savings plans are available to everyone, but a few have residency requirements for the saver and/or beneficiary," the SEC states. "Prepaid tuition plans typically have residency requirements. One exception is a prepaid tuition plan sponsored by a group of private colleges and universities."
How does the Illinois program work?
In Illinois, the state said its educational savings programs have no minimum contribution required, no minimum balance and no annual fees. There's also a tax benefit for Illinois residents whose accounts have a 2023 postmark or are completed online by 11:59 p.m. CT on Dec. 31, the state said.
Still, there are some fees associated with the program.
According to the treasurer's office, "the portfolios have a 0.07% program management fee and 0.025% state fee, plus each portfolio also indirectly bears its pro rata share of the fees and expenses of each of the underlying Investments."
"The $50 seed deposit is a great place to start, but it is only the beginning of a parent’s college savings journey," the treasurer's office said in a release. "College costs have risen more than 134% during the past 20 years. Saving early gives parents more time to set aside money."
Money from Illinois' plans can be used at "eligible educational institutions, including public and private, two-year, four-year colleges and universities, and certain technical and vocational schools."
A list of eligible schools can be found here.
"The investment grows tax-free when spent on qualified higher education expenses," the treasurer's office said.
But what if your child doesn't go to college or use all of the funds?
Here are the options the state says residents have in this case:
- You can leave the funds in the account in the event your beneficiary (or another member of the beneficiary’s family) can use the funds for college expenses at a later date.
- You can change the beneficiary to another member of the beneficiary’s family and use funds for their college expenses.
- You can withdraw the funds as a nonqualified withdrawal. The earnings portion (not the amount you contributed) is subject to federal and state income taxes and a 10% federal penalty tax.
How can you claim your deposit?
Here's how it works:
According to the state, parents can open an account at brightstart.com. There, they'll submit a claim for the $50 First Steps seed deposit as they enroll.
For those who already have an account for an eligible child, they can go to brightstart.com/first-steps/claim/ to submit a new claim.
