Graduation Gifts with a Tax Break

Summertime brings us joy and excitement in many ways. There’s family barbeques, concerts, and weekend trips to the lake, just to name a few. It’s also a time for new experiences, as fresh empty-nesters pack up their cars and prepare to say goodbye to their recent high school graduates.

With the 2017 Fall Semester looming in the distance for these college freshmen, it’s a great reminder to both parents and family members alike to think about opening or gifting to a 529 College Savings Plan. Many states offer a dollar-for-dollar state tax deduction up to an allowable limit. For Illinois residents, 529 contributions of up to $20,000 per year ($10K per taxpayer) can be deducted on a joint tax return. The funds in these 529 accounts grow tax-deferred, and qualified distributions for education costs are tax-free. If you’re planning on sending a check to your niece, nephew, grandson, granddaughter etc. for their graduation gift, consider making it out to their 529 College Savings Account instead. It will not only benefit their education costs, but your tax return as well.

Illinois offers two 529 College Savings Plan programs and we recommend the Bright Start College Savings plan for our clients. Bright Start recently reduced their fees and added new funds to their already attractive investment lineup. A summary of those changes, which occurred between July 12th-14th are listed below:

  • Lower Costs: Reduction in fees for the Bright Start Direct plan management fee by 47%, and elimination of the $10 annual fee on index portfolios. Index Age Based fees will go from ~0.20% to 0.13%.
  • Additional Investment Choices: Bright Start will expand the number of quality fund families investors can choose from. Those funds include Vanguard, T. Rowe Price, Dodge & Cox, Dimensional Fund Advisors, and others. Additional age-based portfolios and investment options will also be added.
  • Enhanced Glide Path – New age bands will be added to the Index Age Based portfolios. Instead of 6 age bands there will now be 9 which will result in smoother changes of equities and bonds over time.

529 College Savings Plans continue to be the best tool for funding college costs, while offering tax deductions for those who contribute to the plans. They also provide families an alternative to the monotonous graduation cards with a couple $20 bills stuffed in between. So, before you throw that card in the mail, consider gifting to these college savings accounts.


Sean Knoerzer is a Senior Planner at BDF where he enjoys digging deep into the details of a client’s financial plan. He sits on the firm’s Financial Planning Committee, which is responsible for educating the BDF team on financial planning topics and improving the team’s planning process. He earned a Bachelor of Science in Agriculture and Consumer Economics with a concentration in Financial Planning at the University of Illinois.  Sean is a Certified Financial Planner™ professional.