Bright Start (IL) College Savings Plan

Updated on October 27, 2010
H.D. asks from Palatine, IL
5 answers

My fantastic dad just opened a Bright Start College Saving Plan for my daughter which I really appreciate but my question is
1-can't you lose money because they invest the money in different things as they see fit?
2-why is it better than just putting the money in a savings account?

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answers from Chicago on

A few quick comments:

Interest in 529 plans is tax free - it is not included when you complete your annual tax forms.

Every state has a 529 savings plan. The one advantage of the Illinois one is you get to deduct those contributions from your annual Illinois State Income Tax form (only the contributions/deposits you made, not what others deposited as gifts). You can do some research (Smart Money), they do a report frequently that identifies which state has the best plans. There may be a way to roll the 529 plan from one state to another without a tax hit, but I'm not sure.

The Illinois Bright Start Savings plan has different savings options. If you aren't used to investing, this can feel like you are gambling with your child's education money. I think the opposite, my money won't grow as much in a savings plan, and I'm gambling my child's education away that way. 18 years to grow money is a nice long time. There will be ups and downs. The ups should outweight the downs. Know your risk tolerance. If you're not comfortable with the big sways in the market, then stay more "fixed".

From my understanding of researching these about 6 years ago, 529 plans are not included when colleges are looking at your income/savings to determine financial aid. Maybe that will change by the time my kids are in college, but maybe not.

I thought some large "gifting" could be done through a 529 plan from a grandparent on an annual basis, where that may avoid some taxes for all involved. We're not in this situation with our parents, so I could be mistaken. But if you have some relatives willing to donate cash, that could be an incentive for them.

I opened 529 accounts for my kids before they were born. You open an account in your name or your spouses name, and start making contributions. Then when the child arrives, you change the "beneficiary" from you to your child. Works like a champ. Time is your friend when it comes to investing, and this gave our money even more time to grow. And I figured if we weren't going to be successful in having another child, I would change the beneficiary to another relative.

Lots of things to think about. Find a financial planner to discuss. Or maybe your parents talked to someone and you can talk to that person. A financial planner can open the accounts for you, but you can also do it yourself. If you do your own research, just know it will take more time.

Investing can be fun!

Good Luck




answers from Chicago on

I would check out Dave Ramsey's book Total Money Makeover - he has a whole section on college savings and the best programs to use that give you the most flexibility.



answers from Chicago on

all the tv ads about Alexi Giannoulis and how he lost $75 MILLION dollars of people money for the kids college funds from Bright Start should steer you in another direction. I would not trust any money with these people. Try something else, safer, at least a savings with a credit union or something else would be better than finding out 10 years from now that you've lost everything. . .



answers from Chicago on

You can invest in different instruments in the Bright Start plan or you can go with a 529 plan which also lets you invest in different instrucments that is not tied into Illinois. We plan to go with the Vanguard 529 college plan. The advantage is that the money grows tax free when taken out. Investing in the stock market in one of these accounts over at least a decade will likely yield a much better rate of return for college than if it was in a savings account. You should probably do some reading on the internet about these types of accounts so you have a better understanding on how to maximize your return.



answers from Chicago on

You can lose money in just about everything, except for a savings account or CD. However, especially at the rates banks are paying these days, you won't be earning much of anything either. Regarding the Bright Start plan, THEY don't invest anything. YOU are the one who controls which type of account the money is invested in. The plan offers different options, some more conservative than others. They are all tied to the market. However, if you want to earn any money on the money your father just put into the account, you will have to take some risk. A savings account may be paying something like .10% these days. Granted, you won't lose money, however, you won't be gaining any either.

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