Changes to Illinois tax law may make the state's 529 college savings plan more attractive to Illinois residents, but they could also inspire other states to try to get residents to favor their in-state 529 plans. If that happens, fund companies that have established a 529 footprint in one state may have to scramble to form alliances with multiple states to get them into their plan.

Governor George H. Ryan recently signed a bill that requires Illinois residents to pay taxes on funds withdrawn from out-of-state 529 plans to pay college tuition. Only withdrawals from the Illinois 529 plan, managed by Salomon Smith Barney of New York, are exempt from taxation.

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