The Power of a 529 College Savings Plan

When it comes to preparing for college costs, few tools are as effective, or as underutilized, as the 529 College Savings Plan. Whether you're a parent, grandparent, or simply someone looking to help a loved one with education expenses, a 529 plan can offer significant advantages, especially for residents of Illinois and Missouri.

What Is a 529 Plan?

A 529 plan is a tax-advantaged investment account designed specifically for education savings. Funds can be used for a wide range of qualified expenses, including tuition, fees, books, supplies, and even room and board.

Recent changes within the One Big Beautiful Bill Act (OBBBA) have expanded uses to include up to $20,000 annually for K–12 tuition and certain apprenticeship programs. 

Additionally, through the Secure Act 2.0, unused funds (up to a limit) can now be rolled into a Roth IRA under specific conditions. This adds flexibility for our Benson Financial Group families worried about overfunding a 529 plan.

Why Illinois and Missouri Residents Have an Edge

Both Illinois and Missouri offer their own state-sponsored 529 plans. Bright Start in Illinois and MOST 529 in Missouri. These plans come with some notable perks:

• State Tax Deductions: Illinois residents can deduct up to $10,000 per individual (or $20,000 for married couples) in contributions from their state income taxes each year. Missouri offers similar deductions. Up to $8,000 per individual ($16,000 for married couples).
• No Residency Requirement for Beneficiaries: One misconception is that you must use your 529 account in the state where it is from. That’s not correct. You don’t have to use the plan in your home state. For example: A child can live in Missouri, have a Bright Start account in Illinois, and attend college anywhere in the country.

Tax Advantages and Long-Term Growth

The biggest draw of a 529 plan is tax-free growth. Contributions grow tax-deferred, and qualified withdrawals are completely free from federal and often state income taxes. That can result in significant savings over the life of the plan, especially if you start early and invest consistently.

529 Plans and Estate Planning

529 plans also offer powerful estate planning benefits. Contributions qualify for the annual gift tax exclusion (currently $19,000 per beneficiary), and a special rule allows you to "superfund" a 529 by contributing five years’ worth at once ($95,000 for individuals or $190,000 for couples) without triggering gift taxes. This allows high-net-worth families to remove substantial assets from their taxable estates while still retaining control over how the money is used.

Common Misconceptions

Some families worry about “locking in” their money or losing it if the child doesn’t attend college. The truth is, you can always change the beneficiary to another family member, or even yourself. And with the recent Roth IRA rollover provision, which started in 2024 as part of the Secure Act 2.0—there are now more ways than ever to put unused 529 funds to good use.

Final Thoughts

Whether you're just starting to save or looking to fine-tune your existing strategy, a 529 plan remains one of the most flexible and tax-efficient tools available for education funding. With strong state incentives in Illinois and Missouri, there's no better time to take advantage of this opportunity. We encourage you to reach out to your Benson Financial Group, Financial Advisor, for any other questions.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. (19-LPL).