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Why NextGen?

Help your child succeed! NextGen is Maine’s Section 529 plan, which many families use to plan for higher education expenses. It’s never too early to start planning ahead and opening a NextGen account now can make a big difference later.

NextGen is administered by the Finance Authority of Maine and Merrill Lynch, Pierce, Fenner & Smith Incorporated is the program manager. NextGen offers many advantages:

Reduce Student Loans and Debt

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Every dollar in a NextGen account, when used for qualified higher education expenses1, is a dollar that doesn’t need to be borrowed and repaid with interest.

*This hypothetical savings example illustrates the potential value of regular $100 monthly investments over 15 years and assumes a $25 initial contribution and an average annual return of 5%. These examples do not reflect actual investments and do not reflect any fees or expenses. Investment performance is not guaranteed. Investments may lose value.

This hypothetical borrowing example illustrates the potential cost of borrowing $18,000, repaying over 15 years and assumes an interest rate of 4%.

 

Tax-free Growth

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  • Any earnings in a NextGen account are federal and Maine state income tax-free¹, when used for qualified higher-education expenses

Multiple Investment Choices

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NextGen offers multiple investment choices that can help meet your college planning needs:

Age-Based Diversified Portfolios

These portfolios provide an investment strategy that varies based on the age of the child. Funds are invested most aggressively when the child is young, and are automatically shifted to a more conservative approach as the child approaches college age.

Diversified Portfolios

These portfolios have specific investment objectives, such as growth or income.

Single-Fund Portfolios

These portfolios invest in one underlying mutual or exchange-traded fund, allowing allocation based on the underlying fund’s range of investments.

Stable Principal Portfolios

The Principal Plus Portfolio is currently invested in only a guaranteed interest account although it may also invest in corporate fixed income investments and/or similar instruments.

The NextGen Savings Portfolio is comprised exclusively of deposits in an interest-bearing, FDIC-insured bank account.

Flexibility

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Parents, grandparents or even family friends can open a NextGen account. You can even open a NextGen account for yourself and pursue your own post-secondary education!

Assets in a NextGen account may be used at any U.S. accredited post-secondary institution. Accredited institutions are those eligible to participate in federal financial aid programs, and include some foreign institutions.

NextGen offers multiple investment choices, and you can move your assets between different investment portfolios, should you find your investment needs change.

 

Contribution Limits

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You can make contributions of as little as $25 a month and currently up to as much as $425,000 for all NextGen accounts for the same beneficiary. Anyone may make contributions to your NextGen account — parents, grandparents, friends or family.

Make It Easy

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Once you open a NextGen account, you can arrange to have contributions made to your account automatically from a checking or savings account, or through payroll deduction. Check with your employer to find out if they can process payroll direct deposits.

Account Owner Control

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With a NextGen account, the account owner retains control over the funds in the account. The beneficiary — your child, grandchild, niece, nephew, or anyone else you name — has no access to the assets in the account. Decisions about the account investments and how the funds are used are always in your hands. Please note that special rules apply to accounts established by UGMA/UTMA custodians.

Gifting and Estate Planning Benefits

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A contribution to a 529 plan account is treated as a completed gift from the donor to the designated beneficiary of the account and qualifies for the annual federal gift tax exclusion ($14,000 in 2017).  This affords a unique opportunity in which you can remove assets from your taxable estate while contributing to an account that you control.  You may also be able to take advantage of a federal gift tax election that applies only to 529 plan contributions.  This election allows you to make a lump-sum contribution up to five times the annual exclusion amount ($70,000 in 2017) per beneficiary in one year and elect to treat the contribution as if it was made ratably over five years avoiding federal gift tax liability, as long as you make no other gifts to the same beneficiary for the next five years.  A married couple filing jointly generally can gift up to $140,000 in 2017.  This gifting strategy may be an attractive option for grandparents wishing to help fund college for one or more grandchildren.²

Please remember there’s always the potential of losing money when you invest in securities.

1 To be eligible for favorable tax treatment afforded to any earnings portion of withdrawals from Section 529 accounts, such withdrawals must be used for “qualified higher education expenses,” as defined in the Internal Revenue Code. Any earnings withdrawn that are not used for such expenses are subject to federal income tax and may be subject to a 10% additional federal tax as well as state and local income taxes.

If you make the five-year election to prorate a lump-sum contribution that exceeds the annual federal gift tax exclusion amount and you die before the end of the five-year period, the amounts allocated to the years after your death will be included in your gross estate for tax purposes.  Please consult your tax and/or legal advisor for specific guidance before making investment decisions that could affect your taxes or estate or Medicaid planning needs.

 

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