If you would like to start college savings plans for your children, now is the time to get started. You have a few options for where to place your money, including a 529 plan or a trust.
What Is a 529 Plan?
A 529 plan is a tax-deferred savings plan specifically created by law to help families save for higher education. You can sign up for a plan based in Illinois, or you can choose a plan in any other state. The Illinois plans include Bright Start (accessed directly by parents) and Bright Directions (accessed through a financial advisor).
Money that you place in a 529 plan gets invested in securities, so it can grow in value tax-free as your child grows. All contributions to Illinois 529 plans are tax-free for Illinois taxpayers, up to $10,000 for an individual or $20,000 for joint filers. If you withdraw the money and spend it on non-educational expenses, you will owe taxes. You can withdraw money from the plan without paying any taxes as long as you spend the money on your child’s:
- College tuition
- Required college fees
- Room and board, as long as enrolled half-time or more
In addition, recent tax legislation expands allowable uses of 529 plan money. Now you can use your contributions to pay for secondary school expenses, whether private school, public school, or charter school. But many parents opt to use 529 plans to save for college.
Saving for Your Child’s Education with a Trust
In addition to using a 529 plan, you may want to set up a trust to save for your child’s future. In contrast to 529 plan money, trust money can go towards non-educational expenses that your child will need, such as clothing and food. Moreover, the trustee may invest in a different variety of securities and investments than a 529 plan advisor would. The money might grow more than it would in the 529 plan, or it could simply diversify the holdings that will pay for your child’s education. If you are interested in setting up a trust, talk to your estate planning attorney about choosing a support trust or a discretionary trust, among other options.
Want to start planning your estate? Local attorney Andrew Szocka, Esq. provides thorough and speedy estate planning help in the Chicagoland area. To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.