SPRINGFIELD, Ill.--(BUSINESS WIRE)--“Sorry Timmy, I spent your college savings on Bears season tickets back in the Cutler glory years.”
“While that alone is a powerful incentive, Illinois residents might also get a great state tax deduction as well, saving money that can be used to further fund the account.”
Though most Illinois parents have their children’s best interests at heart today, some may be left wondering later where the money went. That includes people who already are setting money aside for future education expenses.
According to a survey by Bright Start College Savings, more than half of Illinois parents (58%) have just one financial account dedicated to savings, or none at all. For the 97 percent of the state’s parents interested in sending their kids to college, experts say utilizing more than one savings account is nearly as important as saving in the first place.
Multiple savings accounts ensure that funds earmarked for specific expenses stay separate and help better prepare families for both near-term and long-term financial goals. With just one account, the temptation to spend now on football season tickets or other luxuries might be too great.
“Certainly, many parents with children aren’t in a position to save a lot of money for expenses far in the future,” says 529 industry consultant Andrea Feirstein, managing director of New York-based AKF Consulting Group. “But they should make an effort to save whatever they can, and to split their savings into different buckets.”
One of these, Feirstein says, should be an account designed specifically for education expenses.
Benefits of such accounts – including 529 plans, college savings bonds and Coverdell accounts, among others – can include tax savings and a greatly reduced chance of burdening kids with student loans. As important, Feirstein says, is that funds clearly marked for college savings run a lower risk of being spent for other, near-term purposes.
The Bright Start survey revealed that of the Illinois parents with dedicated college savings accounts, most fund a 529 savings plan (40%). The remainder use such financial vehicles as college savings bonds (22%), pre-paid tuition plans (13%), Coverdell accounts (8%) and custodial UGMA accounts (5%).
“A 529 plan, such as the Illinois Bright Start College Savings plan, allows money to grow tax-free and to be spent on college expenses without incurring taxes,” says Bridget Byron, Director of College Savings Programs at the State of Illinois Treasurer's Office. “While that alone is a powerful incentive, Illinois residents might also get a great state tax deduction as well, saving money that can be used to further fund the account.”
Besides serving as a core savings vehicles, tax-advantaged 529 college accounts allow family and friends to contribute, enable the child to save part of their allowance, and can be linked to direct deposit so a small portion of parents’ paychecks can go directly into the account.
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. Learn more and enroll at brightstartsavings.com.
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 www.brightstartsavings.com or by calling 1.877.43.BRIGHT (1.877.432.7444). Investors should read these documents carefully before investing.