How To Make Money While in Grad School – Saved Nearly 5% on Tuition

I live in Illinois and we are able to deduct our 529 contributions.  I will explain how to make money while in grad school, almost overnight.

My Illinois 529 tax deduction reduced my tuition by nearly 5%.  Most people think you need to invest long-term, in a 529 plan, but that’s not the case.

Each state has different rule for deducting your 529 contributions from your taxes.

You can deduct up to $10,000 for a single filer ($20,000 for joint tax filer) in a 529 tax deduction in Illinois.  Many states allow smaller deductions while others have no deduction for various reasons.

My employer did not pay for graduate school so I was looking to save any dollar possible.  In a good way, most families think about using the 529 Plan as a college savings vehicle for the future.  Many parents will open an account when their child is born and start investing money monthly.  18-20 years later the money will grow and the earnings can be used tax-free to pay for college.  That’s perfect …keep doing that!

I, on the other hand, didn’t have 10-20 years to let it compound.  I was pursuing a graduate degree now.  Unfortunately, my accountant said I couldn’t deduct my tuition from my taxes because getting my degree was not mandatory to keep my job.  Given the frugal person I am, I kept trying to find a way to save any money.

Then it hit me!

Who says I need to keep the money in the Illinois 529 Plan for years and years to get a benefit.

Illinois 529 plan tax deduction steps I took:

  • Opened an Illinois 529 account at BrightStart Savings online – it’s so easy. The form is simple and you can even make your first deposit using your checking routing number.
  • I put $100 in the account to get the process started.  Then I studied the investment fund options that ranged from all stocks to all bonds to cash to a mixture.  In the end, I chose the bond fund to reduce market risk for those couple days.  If the stock market was volatile for those few days, I wanted to reduce my risk.  For longer-term investors, I favor the Vanguard Age-Based fund because it has some of the lowest fees and slowly moves your investment from mostly stocks toward bonds as your kids get closer to college.
  • I received my first tuition bill over the summer for about $6,000.
  • Just before the due date, I deposited the $6,000 into my Illinois 529 account from my checking account.
  • It only took 1-2 days to clear the account. Then I went online to request a check be sent to me for $6,000 to reimburse me for qualified educational expense.
  • Within a short period of time I received a check written to me from Brightstart Savings.
  • I paid the graduate school tuition over the phone with a credit card in order to get my airline miles. My favorite credit card is the Southwest Rapid Reward credit card.
  • Finally, a month later I wrote a check from my checking account, using the reimbursed $6,000 to pay off my credit card bill.
  • At the beginning of the following year, BrightStart sends my tax forms and I’m able to deduct $6,000 from my Illinois state taxes. $6,000 x 4.875% = $292.50 is the reduction in tax I owe to Illinois.  Accountants will refer to this as an under the line deduction.

Try not to wait until the end of December for 529 plan transfers.  I know summers can be busy with enjoyment and chores like cleaning your deck or dealing with messy drains, but this is very important.  I had a year where a mailing and fax got misplaced and my funds did not get transferred in time for tax purposes.  Make the time ahead for planning yout Illinois 529 plan tranfers.

Additional tips and tricks to get a Illinois 529 plan tax deduction. 

You typically have three options when requesting the distribution from a 529 plan:

  • The funds can be made payable to the account holder. For example, if you are the parent who established and oversees the account.
  • The funds can be payable to the student or beneficiary of the account
  • The funds can be made payable to the qualified college

When I first started graduate school, I was single, so I only qualified to deduct up to $10,000 per year from my state taxes.  My next tuition bill for the winter session came in November/December of my first year. I spaced out my payment by making a $4,000 payment to BrightStart Savings by December 31.  This allowed me to reach the maximum $10,000 in a single calendar year.  Then in January, I invested the remaining $2,000 in my IL 520 account.  In the end, I landed up “saving” $487.50 and earning some airline miles for less than an hour of work.

The following year I got married and was then able to deduct up to $20,000 per year for a total savings of $975.  By this point, it seemed automated and was the easiest $1,000 I’ve made …or saved.  As the old saying goes, a dollar earned is a dollar saved.

Do employers receive an Illinois 529 credit for contributing per employee?

Yes, Illinois employers can claim a tax credit up to $500 per contributing employee.  The employer can contribute up to ¼ of the amount contributed for each year toward the employee 529 tuition plans.  **See program details and your accountant

What are the 529 plan Illinois pros and cons?

The benefits of contributing to a 520 plan account far outweigh the negatives.

The 529 Plan Pros:

  • 529 Plans are tax-deferred investment vehicles
  • You can invest in stocks, bonds, cash, or a balanced approach to grow your investment
  • Monthly automatic investment option
  • Your investment contribution is not capped
  • 529 plans allow you to transfer your funds from state to state. Maybe you find a better fund, lower fees, or tax benefits in a different state.
  • You can reassign the funds to a different beneficiary without penalty, ie grandchild, spouse, etc

The 529 Plan Cons:

  • The 529 savings money must be used for education. Any money used outside the plans parameters will results in a 10% penalty plus you’ll be taxed on the gains.  You can’t use the money for Southwest Airlines last minute deals.
  • It could be a factor for financial aid eligibility
  • In some states, your investment options maybe limited
  • The fees on various investment options can vary tremendously


We explain how to make money in grad school, almost instantly.  The truth is, you can apply this technique on reduce college costs to undergraduate schools, private high school tuition, doctorate degree, and anywhere else that accepts 529 plan investments.  Always consult your state 529 plan and your tax consultant for your situation.

Please share with us other ways on how to make money while in grad school.