Your Questions Answered

NextGen 529 is Maine’s section 529 plan. A 529 plan is an investment plan designed primarily to help families save for higher education. These plans are called 529 plans because they are described in Section 529 of the U.S. Internal Revenue Code. This tax code allows any earnings from your NextGen 529 account to grow tax-free. Any earnings in a NextGen account are not taxed when used for qualified higher education expenses.

Anyone who resides in the United States age 18 or older with a valid Social Security Number or U.S. taxpayer identification number can open a NextGen 529 account. Non US Citizens must be Permanent Residents with government approved documents such as an Alien Registration Card or unexpired passport.

There are no income restrictions.

Parents, grandparents and even family friends can open an account, no matter their income or age of the student. You also can open an account to invest for your own higher education expenses.

The account owner (also sometimes called the Participant) is the person who opens and retains control of the account. Often, a parent is the account owner, but a grandparent – and even a family friend – can open a NextGen 529 account and be the account owner.

The designated beneficiary is the student on whose behalf the account has been opened. The designated beneficiary may be of any age, with a valid Social Security Number or Taxpayer Identification Number.

An account owner may open accounts for multiple beneficiaries, and a student may be the beneficiary of more than one account.

An adult can also open an account for themselves to invest for their own higher education expenses.

No, often a parent is the account owner, but grandparents and even family friends, can open a NextGen 529 account and be the account owner.

NextGen 529 account funds can be used for qualified expenses¹ at eligible higher education institutions. Eligible higher education institutions include all accredited post-secondary institutions that are eligible to participate in federal financial aid programs. This broad list includes public universities, private colleges, graduate schools, and vocational schools.

For more information on schools that are eligible to participate, visit the Federal Student Aid Website — fafsa.gov — and enter the names of schools your child might attend. Eligible schools will have been assigned a federal school code. Even some foreign institutions of higher learning qualify. NextGen 529 account funds may be used at any post-secondary school with a federal school code.

Qualified expenses generally include big-ticket items such as college tuition and room and board, as well as books and supplies. The beneficiary must be attending an accredited institution at least half-time for room and board to be considered an eligible expense.

You can also use up to $10,000 per year from your 529 account for the same beneficiary for elementary or secondary public, private or religious school tuition.

For distributions starting in 2019, qualified expenses also include (1) expenses for fees, books, supplies, and equipment required for the participation of a beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act; and (2) amounts paid as principal or interest on any qualified education loans of either the beneficiary or sibling of the beneficiary, up to a lifetime maximum of $10,000 per individual.

Any earnings have the opportunity to grow free from federal (and possibly state) income tax. Withdrawals, including any earnings, are federal tax-free when withdrawn to pay for qualified higher education expenses.¹ Contributions are not deductible for federal income tax purposes. These tax benefits can help maximize your contributions to your 529 account.

In addition, 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 ($17,000).  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 ($85,000) 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 $170,000.  This gifting strategy may be an attractive option for grandparents wishing to help fund college for one or more grandchildren.²

Direct customers: You can make a withdrawal using the Withdrawal Request Form. If you want funds to be paid to more than one payee, please complete a separate form for each payee.
You can also request a withdrawal from your account over the phone. Be sure to have your NextGen 529 account number, the withdrawal amount you are requesting, payee information, and know the portfolios you would like to take money from. Call 1-877-463-9843 to speak to a NextGen 529 representative.

Select customers: Your financial advisor can help you with a withdrawal from your NextGen 529 account. If you are a Select customer who receives account statements from Sumday, you can use the Withdrawal Form on Vestwell’s NextGen 529 forms web page. Select customers who receive account statements from Merrill, contact your financial advisor.

Am I a Direct Customer or Select Customer?

Contributions can be made online, by check or by transferring or rolling over funds from another account. Make it easy by setting up automatic contributions from your checking or savings account, or using payroll deduction.

Learn more about making contributions.

Make contributions when you can, in whatever amount you are able. After you make your first contribution of $25, there is no minimum contribution amount.

If you are or your beneficiary is a Maine resident, you may open your account with $25 and receive a $100 Initial Matching Grant (if eligible), OR if your child qualifies for the $500 Alfond Grant, no initial contribution is necessary. Learn more about Grants for Maine Residents.

NextGen 529’s maximum contribution limit is generous – $520,000 per all NextGen 529 accounts for the same beneficiary.

With NextGen 529, you may choose from many investment options designed with your savings goals in mind. There are age-based options that will automatically re-allocate as your child grows, as well as diversified and single fund portfolios. The Principal Plus or NextGen Savings Portfolios are also available and may be a great choice to consider if you have low risk tolerance or your child is near college-age.

NextGen 529 does not guarantee your investment or any specific rate of return. The value of your account may increase or decrease, based on the investment performance of the investment(s) which you select.

A family’s income (not savings or assets) is the primary factor in determining federal financial aid eligibility. The federal financial aid eligibility formula includes an Education Savings and Asset Protection Allowance that excludes a portion of the assets that are counted (primary residence and retirement accounts are already excluded). Only “countable” assets (including 529 plan assets) that exceed the allowance have ANY impact – and currently not more than 5.64%.³

For some families, college savings won’t reduce financial aid at all.

Any savings that a student uses to pay for college are helpful because they can reduce reliance on loans, which must be repaid with interest.

In the event your child does not choose college, you can:

1. Leave it invested! The assets can stay in the account where they continue to have the opportunity to grow tax-deferred until your child decides to attend college in the future.  There is currently no time limit on when funds must be withdrawn.
2. You could change the beneficiary of the account to a sibling (or other qualifying family member – see below), for instance, to pay for that child’s college costs. You could even change the beneficiary to yourself and pursue your own higher education!⁴
3. Take the money back. However, if you take a non-qualified withdrawal, the earnings portion of the withdrawal, if any, will be subject to ordinary income tax and an additional 10% tax, and may also be subject to state and local income taxes. The additional 10% tax does not apply under the following conditions:

• If the beneficiary receives a scholarship, you can withdraw up to the amount of the scholarship from your account.
• If the beneficiary becomes disabled.
• If the beneficiary dies and the withdrawal is paid to the beneficiary’s estate.

Who is considered a qualifying member of the family?

A “Member of the Family” is the Designated Beneficiary’s:

• Father or mother, or an ancestor of either;
• Child, or a descendant of a child;
• Stepfather or stepmother;
• Stepson or stepdaughter, or a descendant of either;
• Brother, sister, stepbrother or stepsister;
• Brother or sister of the father or mother;
• Brother-in-law, sister-in-law, son-in-law, daughter-in-law, father-in-law or mother-in-law;
• Son or daughter of a brother or sister;
• Spouse or the spouse of any of the foregoing individuals; or
• First cousin.

For purposes of determining who is a “Member of the Family,” a legally adopted child, foster child and stepchild of an individual is treated as the child of such individual by blood relationship, and a brother or sister includes a brother or sister by half blood.

If your child is fortunate enough to receive scholarships, that’s cause for celebration!

Remember, though, that you will probably still have qualifying college expenses to pay — such as room and board, required fees, books or supplies.¹The beneficiary must be attending an accredited institution at least half-time for room and board to be considered a qualified expense.

You could also choose to keep any remaining funds in the 529 account to cover your beneficiary’s expenses for graduate school or you could change the beneficiary on the account to another family member.⁴

You also have the option of withdrawing funds from your account for the amount of the scholarship without being subject to the 10% additional tax. You would, however, be required to pay federal and applicable state income tax on the earnings portion of the withdrawn amount.

No. As the NextGen 529 account owner, you retain control of the account. Only you can instruct how and when withdrawals are made from the account.

Yes. But, because securities cannot be contributed to a 529 account, you must first liquidate any securities in the UGMA/UTMA account in order to invest the cash into your NextGen 529 account. In addition, you will have to report any gains/losses incurred from liquidating the custodial accounts on your personal tax return. You should discuss any financial transactions with your professional tax advisor. The good news is that once the custodial assets are deposited into a NextGen 529 account, you have the opportunity to benefit from the advantages of NextGen 529 and eliminate any need to file an annual tax return for the UGMA/UTMA assets held in the NextGen 529 account.

Yes. Currently you can contribute to both a Section 529 account and a Coverdell ESA in the same year for the same beneficiary.

Yes. Currently, you are permitted one rollover per 12-month period from a Coverdell or other Section 529 plan without having to change the beneficiary.

Yes. Contributing to a NextGen 529 account will not affect your eligibility to receive these credits. However, you must meet the federal income requirements for these credits. Visit the Internal Revenue Service website at www.irs.gov, and consult your tax advisor for more information on the American Opportunity and Lifetime Learning credits.

Maybe. Each state offers its own features to the general population and/or to its own residents. Compare plans and find out what is truly right for you and your beneficiary.

Visit collegesavings.org or savingforcollege.com to do a comparison of various state Section 529 plans across the country.

Yes. Effective December 22, 2017, you may rollover amounts in a 529 plan account to a Section 529A Qualified ABLE Program (ABLE) account for the same designated beneficiary, or a qualified family member of the beneficiary, federal income tax free, subject to applicable ABLE contribution limits. Distributions in connection with ABLE rollovers must occur before January 1, 2026. Tax treatment of ABLE rollovers may differ in some states. Please consult your tax advisor for specific advice regarding such distributions.