529 Accounts — state tax deduction
Dear Ms. S.,
For the past few years, I have contributed to three Bright Directions accounts for my niece and two nephews. Their father established the accounts with Morgan Stanley.
Each year, I provide copies of the cancelled checks payable to Morgan Stanley with the 529 account numbers in the memo line. I also provide copies of the accounts’ quarterly statement pages reflecting the check deposits. However, each and every year, the Illinois Department of Revenue (IDOR) questions the deductibility of my contributions.
The Department responded to my email by writing “IDOR reserve the right to question any credit claimed. As for why, it could be account number entered incorrectly; amounts need verified, or IDOR simply wants proof.”
Additionally, I spoke with Mr. John Mitchell, Director of College Savings, at the Treasurer’s office. He thought that the Department and Morgan Stanley’s computers were not communicating.
Am I doing something wrong? Is there something else I can do? Does Morgan Stanley need to link the contributions to my SSN? Are other people having similar issues? I am amenable to any advice you might have.
Terry Says
You are allowed to deduct contributions — up to $10,000 — (or $20,000 if married filing a joint return) to Illinois Bright Start plan, IF you are a state resident.
(Not up to $10,000 per plan — just $10,000 in contributions in one year.)
I haven’t heard of anyone being questioned. And frankly, I don’t know what the plan custodian has to do with this — except as a record-keeping resource to back up your claims if you are ever audited by Illinois.
Keep deducting your contributions within those limits. If they don’t disallow them, just be annoyed at their standard email. The Ill Dept of Revenue obviously has nothing better to do!
