Illinois implements changes to Section 529 college savings plan regulations

House Bill 3280, introduced in the Illinois House of Representatives on March 13, 2025, aims to amend existing tax provisions related to qualified tuition programs and ABLE accounts under the Internal Revenue Code. The bill seeks to enhance the financial landscape for Illinois residents by providing tax exclusions for distributions from these educational savings programs.

Key provisions of House Bill 3280 include the extension of tax exclusions for distributions from qualified tuition programs, specifically those under Section 529 of the Internal Revenue Code. The bill stipulates that for taxable years beginning on or after January 1, 2002, and ending before December 31, 2006, eligible distributions will be excluded from gross income. Furthermore, for years starting January 1, 2007, the bill outlines similar exclusions for distributions from programs that comply with specific disclosure principles and make reasonable efforts to inform Illinois residents about in-state options.

Additionally, the bill addresses qualified ABLE programs under Section 529A, allowing for tax exclusions on distributions for taxable years beginning on or after January 1, 2018. This provision aims to support individuals with disabilities by facilitating savings for disability-related expenses.

The introduction of House Bill 3280 has sparked discussions among lawmakers regarding its potential impact on educational savings and financial planning for families in Illinois. Proponents argue that the bill will encourage participation in state-sponsored educational programs, ultimately benefiting residents by promoting higher education accessibility. However, some critics express concerns about the fiscal implications, questioning whether the tax exclusions could lead to reduced state revenue.

As the bill progresses through the legislative process, its significance lies in its potential to reshape the financial landscape for educational savings in Illinois. If passed, House Bill 3280 could enhance the attractiveness of in-state tuition programs, thereby influencing the decisions of families considering higher education options. The ongoing debates surrounding the bill will likely shape its final form and implementation, with stakeholders closely monitoring its developments.