Tax code could impact college savings plans

ILLINOIS (WCIA) -- If the state's financial troubles weren't bad enough, the treasurer's office is warning new problems could be on the horizon.

State Treasurer Michael Frerichs says changes to the federal tax code may be bad news for Illinois' 529 savings program. The plan helps families save money for college, but now the option is being offered to private, K - 12 schools.

State leaders want families to use the plans, but not like this. The program is supposed to be for long-term investment options; specifically designed with college in mind.

The latest move turns the state's system upside-down. Not only does it shorten the turnaround, but experts fear it creates a giant loophole.

Since savings plans come with a big tax cut, some fear private school families will use the method to avoid paying taxes.

The treasurer's office says it could cost the state money. Others say the claims are far-fetched.

Rep. Tim Butler (R-Springfield) says no family trying to save money for school should be denied.

"Out of the  $37 billions of dollars that we take in for the state of Illinois I don't think this is going to have a huge impact on the bottom line, and if we’re encouraging people to save for their children’s education whether that’s K-12 or higher education I think that’s a good thing," says Butler.

The treasurer's office oversees investments for the state. A spokesperson says the office is crafting new legislation to respond to federal changes.

For those not familiar with the program, there are two types of 529 plans offered in the state: pre-paid tuition and college savings plans.

All 50 states and the District of Columbia sponsor at least one type. A group of private colleges and universities sponsor a pre-paid tuition plan.


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