Giannoulias bill removes tax penalty
Governor signs bill so families can earn more money for college

August 7, 2007

Legislation drafted by State Treasurer Alexi Giannoulias that helps families save more toward a child’s college education was recently signed into law.

The measure removes the tax penalty for families who invest in out-of-state college savings plans. It was signed into law by Governor Rod Blagojevich and takes effect immediately.

“As elected officials, we need to make sure that Illinois families get the most out of their hard-earned dollars and can afford to send their children to college,” Giannoulias said. “Given the rising costs of college, this is a big win for Illinois consumers.”

Along with Alabama, Illinois was the only other state that imposed a 3 percent state tax on the earnings residents receive from tax-exempt savings programs, commonly known as “529 plans,” administered in other states.

Morningstar Inc. stated in a recent article that “Illinois has earned poor marks up until now for taxing qualified distributions of residents who invest in out-of-state 529 plans…We strongly urged the governor to sign the bill to give investors the freedom to choose the college savings plan most suited to their needs.”

Giannoulias noted that Illinois should not penalize Illinoisans simply because they had sought a more profitable plan out of state.

“We should not be taxing families on money they save to send their kids to college,” he said.

The bill was sponsored by State Sen. James Clayborne (D-Belleville) and State Rep. Jack Franks (D-Woodstock). It was approved by Illinois lawmakers earlier this year, passing unanimously in both the Senate (56 to 0) and the House (113-0).

A recent report issued by the College Board, which tracks national tuition costs, showed that college costs have tripled during the past 20 years. The report noted that during the 1985-86 academic year, costs at public schools totaled $3,791. During this past academic year, those same costs totaled $12,796. Costs at private colleges jumped to $30,367 from $8,902 during the same time period.

Giannoulias’ office recently overhauled Illinois’ Bright Start College Savings program. Bright Start now offers lower annual fees and provides stronger investment options so participants can get a better rate of return.

“Illinois families will invest in Illinois’ 529 plan because it provides them the best investment options at a low cost, not because they will be punished if they don’t,” Giannoulias said.

Bright Start offers a range of investment options accessed directly through the program or through professional financial advisers. Anyone who wants to invest in a child's college education can establish a Bright Start account for as little as $25. For more information on Bright Start, visit www.brightstartsavings.com or call the Treasurer's Office at (888) 845-4723.