Ask Terry Questions Coverdale rollover to 529

Coverdale rollover to 529

By Terry Savage on November 20, 2023 | College Savings / Student Loans

Terry, good afternoon. Spoke to you briefly on the John Williams show today but was not able to finish. This question was in reference to Vanguard sending me a letter informing of their plan to not service Coverdale accounts in the future. The options are to rollover the account to a Vanu529 or another 529. I have contributed the maximum for my daughter for the past 17 years. I have a Brightstart account that I also started for my daughter 17 years ago. I am in the process of rolling over the Vanguard Coverdale to my daughter’s Brightstart account. I am aware the I can deduct up to $20,000.00 from state taxes per year to a Brightstart account. When the rollover occurs in the next week or so, how Will Brightstart know that I contributed more than the $20,000.00 and the rest of the rollover was earnings? When I do my 2023 state taxes I would just put down $20,000.00 or will I have to submit documentation that I contributed over $20,000.00? And lastly, since I contributed more than the $20,000.00 can I deduct the amount over $20,000.00 in future years? Hope this makes sense. It was a pleasure talking to you on Mr. Williams show today. Thanks for all you do for the average Joes.

Terry Says

I don’t know that I can answer the substance of your question, which is the carryforward of any excess contribution.
The state website says the following about the deductibility of your rollover from another plan:
If your contributions were made by rolling over funds from another college savings program into Bright Start – the amount of the rollover that constituted investment in the prior qualified tuition program for federal income tax purposes (but not the earnings portion of the rollover) is eligible for the deduction limits discussed above. You should consult your tax or legal advisor about the availability of such deduction.

They also post an annual update of the previous year’s contributions in mid-February. And also the website says:
The person making the gift contribution may report it on their Illinois 1040 – Schedule M. Check with your tax professional for the proper tax reporting.

But nowhere do I see any chance of extending the excess contribution to future years for future tax deductions. Your CPA might have access to the Illinois tax department for more information. If you do find this is possible, please let me know. Great question!

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