Maine Taxpayers – New for 2023!
Contributions made in 2023 to a 529 account, of up to $1,000 per student, may be eligible for a Maine state income tax deduction.
Why NextGen 529?
Explore the many benefits of investing for higher education with NextGen 529–tax-free growth, flexibility about where you invest, and the ability to easily change beneficiaries. Opening a NextGen 529 account for someone special in your life makes all kinds of sense.
“As a CERTIFIED FINANCIAL PLANNER™ practitioner, I understand the importance of saving early. I’ve been inspired by a lot of my clients who have 529 accounts for their kids and grandchildren. I hope to provide a similar benefit to my kids to fund their education. “
Caleb J Warren
Hampden, ME
BENEFITS and ADVANTAGES
Advantages of NextGen 529
A NextGen 529 account comes with a lot of advantages. Here are a few.
Tax-free growth
Earnings can grow tax-free from federal (and possibly state) income tax. Withdrawals are federal tax-free when withdrawn to pay for qualified higher education expenses.
Control
As the account owner, you retain control over the funds in the account. Decisions about investments and how the funds are used are always in your hands. The beneficiary has no access.
Generous contribution limits
After your first $25 contribution, there’s no minimum contribution amount. The maximum contribution is generous at $520,000 for all NextGen accounts for the same beneficiary.
Make it easy
Make contributing to your NextGen 529 account easy by setting up automatic contributions from a checking or savings account or through payroll deduction.
Gifting
Anyone can contribute to your NextGen 529 account—parents, grandparents, family, or friends. A contribution to a NextGen 529 is a great gift idea for birthdays and special holidays.
Estate planning
Contributing to a NextGen 529 account can be an attractive option for grandparents wishing to help fund college for their grandchildren—and provide estate-planning benefits.
What Can I Use My NextGen 529 Account Funds For?
You can use your NextGen 529 account funds to pay for a variety of qualified education expenses1 at eligible higher education institutions, which include four-year colleges or universities, accredited two-year associate degree programs, vocational schools, trade schools, even qualified online courses– any post-secondary schools that participate in federal financial aid programs—at home or abroad. Qualified education expenses generally include expenses such as tuition and fees, computers, books and supplies, and room and board (for students who attend school at least half time).
In addition, NextGen 529 account funds can be used to pay 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. A maximum of $10,000 can be withdrawn to pay for principal or interest on qualified student loans of the designated beneficiary or a sibling of the beneficiary.
You can also use up to $10,000 per year for the same beneficiary to pay for K-12 tuition at an eligible elementary or secondary school (although some states still consider K-12 tuition a non-qualified expense).
START SAVING. BORROW LESS.
It Pays to Save
Every dollar in a NextGen 529 account is a dollar that doesn’t need to be borrowed (and repaid with interest) for education. And that can make a big difference.
*This hypothetical investment 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%.
Which 529 Account Is Right for You?
NextGen 529 offers two types of accounts
HAVE A QUESTION?
FAQs
Have a question? Get answers to frequently asked questions about NextGen 529 plans. Don’t see your question? Contact NextGen 529.
What can I use the money I save in a NextGen 529 account for? What’s a qualified education expense?
You can use your NextGen 529 account funds to pay for a variety of qualified education expenses1 at eligible higher education institutions, which include four-year colleges or universities, accredited two-year associate degree programs, vocational schools, trade schools, even qualified online courses– any post-secondary schools that participate in federal financial aid programs—at home or abroad. Qualified education expenses generally include expenses such as tuition and fees, computers, books and supplies, and room and board (for students who attend school at least half time).
In addition, NextGen 529 account funds can be used to pay 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. A maximum of $10,000 can be withdrawn to pay for principal or interest on qualified student loans of the designated beneficiary or a sibling of the beneficiary.
You can also up to $10,000 per year for the same beneficiary to pay for K-12 tuition at an eligible elementary or secondary school (although some states still consider K-12 tuition a non-qualified expense).
Who can open a NextGen 529? Does it have to be a parent?
You don’t have to be the parent or even related to the student. Parents, grandparents and even family friends can open an account, no matter the income or age of the student. You also can open an account to invest for your own future higher education expenses.
Account owners must reside in the United States and be 18 or older, with a valid Social Security number (without work restrictions) or U.S. taxpayer identification number. Noncitizens need to document their United States residency by providing a copy of their United States Permanent Resident Card (commonly known as a “Green Card”) and passport.
What if my child doesn’t go to college?
If your child doesn’t choose to go to college (and remember, college includes trade and vocational school, two-year programs, even qualified online courses), you have some choices. You could:
- Leave it invested! The money you invested can stay in the account. It can still 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.
- Transfer the savings to another eligible family member,2 such as a sibling or even yourself–you could use it for your own higher education!
- Withdraw the money and use it however you like. You will need to pay taxes on any earnings, plus a 10% penalty of those earnings. The penalty doesn’t apply if:
- The beneficiary receives a scholarship. You can withdraw up to the amount of the scholarship from your account.
- The beneficiary becomes disabled.
- The beneficiary dies and the withdrawal is paid to the beneficiary’s estate.
Also, even if your child gets a scholarship and doesn’t need the money for tuition, you may still have expenses to pay, such as fees, computers, books and supplies, and room and board (for students attending at least half time).
What are the tax benefits of NextGen 529 and other 529 plans?
Tax-free growth
Any earnings can grow free from federal and Maine state income tax. Withdrawals, including any earnings, are tax-free when withdrawn to pay for qualified higher education expenses.1 These tax benefits can help maximize your contributions to your 529 account.
Maine state tax deduction
Maine offers a $1,000 Maine income tax deduction on contributions made to NextGen 529 (and any other 529 plan). Tax filers can claim this deduction if their federal adjusted gross income is $100,000 or less if filing single or married filing separately, or $200,000 or less if filing as head of household or married filing jointly.
Other states offer tax deductions. Learn more at: https://finaid.org/savings/state529deductions/
Gift tax benefits
529 plans also offer federal estate and gift tax benefits, making them a valuable estate-planning tool.
A contribution to a 529 plan account is treated as a completed gift from the giver to the recipient (the designated beneficiary of the 529 account) and qualifies for the annual federal gift tax exclusion of $17,000 ($34,000 for married couples filing jointly), per beneficiary. This allows you to remove assets from your taxable estate while contributing to an account that you control, if you are the account owner.
You may also be able to take advantage of a federal gift tax election that applies only to 529 plan contributions. This allows you to make a lump-sum contribution of up to $85,000 ($170,000 for married couples filing jointly), which is five times the annual exclusion amount, per beneficiary in one year, and treats the contribution as if it was made ratably over five years.3
How do I contribute to a NextGen 529 account?
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.
Can my child access funds in the account?
No. As the account owner of an individual NextGen 529 account, you retain control of the account. Only you can instruct how and when withdrawals are made from the account.
How is my money invested?
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 reallocate 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. See the Direct Series Program Description for detailed information regarding investment options.
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.
COLLEGE SAVINGS GUIDE
Planning Ahead Makes All the Difference
Education after high school can open a world of possibility for you or your child. It can also seem a little overwhelming at times. To help you get started, we’ve pulled together a series of articles that will teach you the ins and outs of saving and paying for education after high school.
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 Section 529 of the Internal Revenue Code. Any earnings withdrawn that are not used for qualified higher education 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. State tax treatment of distributions for certain qualified higher education expenses may differ. Please consult your tax advisor for specific advice regarding such distributions.
2 Some restrictions apply. You generally are permitted to change the beneficiary to another qualified member of the family, as defined under the Internal Revenue Code, without triggering income tax and 10% additional federal tax. Not applicable for accounts opened under a Uniform Gifts/Transfers to Minors Act registration.
3 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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