Very Happy With Illinois 529 Savings Plan
Today I started looking through the new set of funds for my daughter’s Illinois Bright Start Savings 529 plan. The new funds came about with a change to the plan’s Program Manager from Legg Mason to OFI Private Investments (a subsidiary of OppenheimerFunds). I must say I’m very impressed with the radical change not only in fund selection but also the dramatic reduction of fees. I guess I can thank my new state treasurer, Alexi Giannoulias.
Here are the highlights of the plan:
Maximum account balance is $235,000
This is PER BENEFICIARY. So if you have two children, you can have the maximum for each. Let’s be honest, though, $235,000 is a lot of money. The cost of a year at Harvard is currently $50,950. Assuming four years with the same tuition rate (bare with me - I know it won’t happen), the total cost of tuition, room, and board would be $203,800. That leaves $31,200 to purchase books and other necessities of college life. As long as the maximum increases proportionately to the costs of attending college, the maximum shouldn’t be a factor for most people.
Minimum initial investment is $25
This lets nearly anyone, even those that have low incomes, save for college in a tax efficient way. After the initial investment, the minimum contribution is $15. A minimum contribution this low encourages “snowflake” investing. (which I had never heard of until Paid Twice wrote about it)
Contributions are deductible from state taxes
This may not be as big of a deal as it is in other states as Illinois has a flat 3% tax on individuals. It does, however, make for a nice bonus at the end of the year. The maximum amount you can deduct each year is $10,000 (or $20,000 if filing jointly). So, assuming you contribute the maximum as a married couple, you could be looking at $600 in tax savings.
Qualified withdrawals are federal tax free
This is the same with all other 529 plans, but is a major reason the plans are so attractive. Combine this with the state tax deductibility of contributions and tax-deferred growth and you have a great investment vehicle to help you save for college. Be careful with your withdrawals, though. If you withdraw funds from the plan for non-qualified expenses, you will owe federal taxes, applicable state taxes, and an additional 10% federal tax on the withdrawal.
Great fund selection
With the new program manager, the Bright Start Savings Plan added a host of great new investment alternatives. They now have not only a host of actively managed funds but also a few index-based alternatives as well. The most exciting part about the index funds is that they are managed by Vanguard. They are definitely a market leader in quality, low fee index funds.
(Relatively) Low Fees
The best part of the new deal, to me, is that the fees have dramatically decreased. Here is the fee table:
All of these features make Illinois Bright Start Savings 529 plan one of the most competitive 529 plans in the U.S. - especially if you live in Illinois. If you don’t live in Illinois, there are a couple of other states that have great plans. Check out Five Cent Nickel’s take on the three best 529 plans.
August 23rd, 2007 at 8:00 am
I love this post! I am still pondering which 529 plan to join. IL is on my short list though (and was before the post even).
thanks!!
August 23rd, 2007 at 9:43 am
Glad I could be of some help.
I saw on a survey somewhere that, before the changes, Illinois was ranked 47 out of 48 state 529 plans. It is amazing that they were able to go from that to one of the leading plans.
August 23rd, 2007 at 3:46 pm
Brian, nice post about the changes to the IL plan. I’d written about the change to the plan administrator about a month ago.
As a participant in the plan, I am very happy with the changes and am very pleased to see Vanguard involved. I’ve been a big fan of Vanguard for some time now and love the low fees of their index funds.
August 23rd, 2007 at 5:58 pm
I looked into 529s a month ago and as a gift for my nephew wanted to make a small contribution each year to the account. My state offers no bonuses, so it made sense to look elsewhere. IL’s plan was great, but since they had an annual maintenance fee (I think it was small, but my gift was small), I went with Ohio. I pay a 0.32 fee for the Aggressive option which is 80% Vanguard Total Market Index and 20% one of their foreign funds. It’s better than giving up 10% of my yearly gift.
For my own child, I may go with IL, but I’ll have to look into what it’s international investment is. I think over the next 20 years putting some of your eggs in countries other than the US may not be a bad idea. I don’t want a plunging dollar destroy my plan.
August 24th, 2007 at 6:31 am
[...] FinancialDominance has a great article on the Illinois 529 Plan [...]
August 29th, 2007 at 9:02 am
[...] Very Happy With Illinois 529 Savings Plan @ Financial Dominance [...]
April 27th, 2008 at 8:15 am
Very usefull article. I’m thinking for a while to join a 529 Saving Plan and i would like to have more details about these programs. Illinois Bright Start Savings 529 seems good an if it is truth that the minimum initial investment is $25 it will be perfect for me.
May 7th, 2008 at 10:26 am
Saving 235,000$ is quite a sum and that is quite hard to believe for someone that does not have a big pay check and you are talking about Harvard? It seems that you are a rich person… I would love to go there, but that’s just a dream.