Types

• There are two types of 529 plans: college savings plans and prepaid tuition plans. A college savings plan is used to save for future education expenses, including tuition, fees, books and room and board. A prepaid tuition program allows you to purchase future college credits at current tuition levels. In Illinois, the Bright Start and Bright Directions 529 plans are designated as college savings vehicles. The College Illinois! program is a prepaid tuition plan.
  
  

Eligibility

• Anyone over age 18 may open a Bright Start or Bright Directions 529 plan, regardless of your state of residency. You may open a 529 plan for yourself, your child, another relative or a friend. According to College Illinois!, you must be a state resident to participate in this prepaid tuition program. Prepaid tuition plans may only be used for the benefit of a child or grandchild. There is no income limitation on who may contribute to either type of account. Plan enrollment is open year-round.
  
  

Contributions

• Contribution limits vary for Illinois 529 plans. Maximum cumulative contribution to a Bright Start or Bright Directions plan is $320,000, as of 2010. According to College Illinois!, you are allowed to purchase a maximum of nine semesters of university-level credit or four semesters of community college credit. If you contribute to a Bright Start, Bright Directions or College Illinois! plan you may deduct up to $20,000 of your annual contribution if you are an Illinois resident.
  
  

Benefits

• In addition to the tax deduction for state residents, the Illinois 529 plans offer several benefits. Funds held in a Bright Start or Bright Directions plan can be used to pay for education expenses at any college or university in the country. Both funds also offer a broad range of mutual fund investments, including age-based and target allocation portfolios and carry relatively low fees. The College Illinois! plan can be used at a wide range of schools in the United States and abroad.
  
  

Considerations

• If you're trying to decide between a savings plan and a prepaid tuition plan, there are several factors to consider. Like most 529 savings plans, the Illinois plans do not offer individual stocks or bonds as investment options. In addition, you are limited to making one investment change per year and funds are subject to market volatility. It's also important to keep in mind that a prepaid tuition plan allows you to receive a penalty-free refund for any excess contributions. With a 529 plan, excess contributions are subject to a 10 percent tax penalty unless you transfer them to another beneficiary.