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Illinois Enacts Tax Legislation Concerning 529 Education Savings Programs
Washington, DC, July 17, 2002 - The Governor of Illinois recently signed into law H.B. 4187, which amends Illinois income tax law with regard to earnings distributed from out-of-state Section 529 college savings programs and the deductibility of certain contributions made to the Illinois College Savings Pool.
H.B. 4187 also states that the Illinois Student Assistance Commission and other State agencies may not consider any contributions made to the Illinois College Savings Pool when determining whether or not, or how much, a designated beneficiary should receive in terms of scholarships, grants, or monetary assistance. This provision would not apply to contributions made to any Section 529 program that is not affiliated with the State of Illinois.
For taxable years beginning on or after January 1, 2002, H.B. 4187 states that:
- Section 529 college savings program distributions that are excluded from gross income under Internal Revenue Code section 529(c)(3)(B) (distributions for qualified higher education expenses)—other than distributions from the Illinois College Savings Pool and the Illinois Prepaid Tuition Trust Fund—are includable in income for Illinois income tax purposes; and
- amounts excluded from gross income under section 529(c)(3)(i) of the Internal Revenue Code contributed to the Illinois College Savings Pool are not eligible for deduction under Illinois income tax law.
The Institute, in an April 2002 comment letter, urged the Municipal Securities Rulemaking Board to consider adopting a new disclosure requirement that would promote investor understanding of the state tax consequences associated with an investment in a Section 529 college savings plan.