We rolled over money from a 529 to Illinois' Bright Start College Savings Program.
On the Illinois return do we have to enter an amount in the "Distributions from a 529 college savings, tuition or ABLE programs" section? The money was not distributed to us, just rolled over.
No, if it was a rollover, it does not have to be reported to Illinois.
Can an answer be be generated if the rollover goes from IL to another state 529 plan?
Yes, there may be federal income tax consequences to an outbound 529 rollover from Illinois to another state, even though 529 rollovers are generally not taxable. This is because some states treat outbound rollovers as taxable events. Unfortunately, Illinois is one of those states. You may have to pay state income tax on the earnings portion of the rollover, and the state may impose a recapture of any state income tax breaks applicable to the distribution.
The states that penalize outbound rollovers include Alabama, Arkansas, Colorado, Georgia, Idaho, Illinois, Indiana, Iowa, Montana, Nebraska, New Mexico, New York, Ohio, Oklahoma, Rhode Island, Utah, Virginia, Washington DC and Wisconsin.
I rolled over a brokerage 529 into an Illinois Bright Start plan. The amount I rolled over was more than $25,000. Do I enter the total amount into the contribution field and is the roller tax deductible for Illinois?
If you had taxable income invested in the plan that portion can be deducted, not earnings. Section 529 Plans - Illinois.gov states:
In the case of a rollover, as defined under IRC Section 529(c)(3)(C)(i), in which an amount is transferred from a qualified tuition program established and maintained by another state to an Illinois qualified tuition program, only the portion of the rollover that constituted investment in the account for federal income tax purposes shall be considered a contribution for purposes of IITA Section 203(a)(2)(Y) and this Section.
Hi Amy,
Thanks for responding to my question. I only rolled over 1/2 of what I had in the other 529 account. I can figure out the contribution and gain amount, but is it really necessary since I only get the deduction based on the maximum of $10K per year for Illinois?
Thanks,
Ken
@KenH4 Yes and no. No, if you know you have the base covered with no problem, go for it. If the IRS or IL decides to ask, yes, you need to be able to show that you are covered.