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Illinois Tax Deduction for Section 529 Contributions

Rules for Claiming an Illinois Tax Deduction for Section 529 Contributions


The state of Illinois offers one of the largest Section 529 tax deductions of any state. For 2008, the maximum deduction allowed is $10,000 per taxpayer, regardless of how many students they contribute on behalf of. Couples filing a joint return are permitted a combined Illinois tax deduction of $20,000.

Increasing the attractiveness of contributing to an Illinois-based Section 529 plan is the fact that a resident doesn’t need to itemize their other deductions to claim this benefit. In other words, if you cannot deduct anything else, you are still be able to deduct your contributions to the plan from your Illinois “base” income.

Contributions must be made by December 31st of any given year to be deductible for that year. Only contributions made to the Illinois Bright Start, Bright Directions, or College Illinois Prepaid Tuition program are eligible for an Illinois tax deduction.

Value of the Illinois Section 529 Tax Deduction:

If you are a Illinois resident trying to choose between one of the Illinois-based Section 529 plans and another savings vehicle, you need to consider your potential tax savings for contributions to one of the in-state plans. Remember, Illinois residents only receive a Illinois tax deduction for contributing to one of their state’s Section 529 plans; not for plans from other states.

Since Illinois has a flat-tax rate of 3% on all taxpayers, a $10,000 contribution would save any taxpayer $300 at tax time. Couples filing jointly, making the maximum deductible Section 529 contribution of $20,000, would save $600 at tax time.

Reference and Documentation:

Additional documentation for this deduction is available from the Illinois Department of Revenue in their instructions for state Form M. Additional information is also available from the websites for the Bright Start, Bright Directions, or College Illinois Section 529 plans.

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