What is NextGen?
The NextGen College Investing Plan provides a tax-advantaged way to save and invest for anyone's future higher-education expenses and can be used at accredited post-secondary schools. The NextGen Plan is a Section 529 plan administered by the Finance Authority of Maine (FAME). Investment oversight is provided by the Maine State Treasurer. Merrill Lynch Pierce, Fenner & Smith Incorporated is the Program Manager.
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A little planning today will go a
long way toward providing your child with the gift of a college education.
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Why do you need a NextGen account?
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The need to save for higher education is obvious. According to The College Board's Trends in College Pricing 2009 the estimated national average costs of a four-year in-state public college is approximately $87,743 and $214,690 for a private college (college costs assume four years of school attendance and an annual average tuition increase of 5 percent). With inflation, by the time a one-year old would attend college, those numbers are projected to be $191,532 and $385,553, respectively (Projected college costs assume costs 17 years from today, four years of school attendance and an annual average tuition increase of 5 percent).
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Meeting these important goals requires careful planning and a commitment to a saving and investing strategy. Investing through a tax-advantaged 529 account is a great way to help you meet your goal.
Benefits of a NextGen Account
Parents, grandparents, even family friends can establish an account regardless of income, residency, or the age of the beneficiary. However, minors may not own a NextGen account.
Earnings grow Maine state and federal income-tax-deferred, and are tax-free as long as the withdrawals are used for qualified higher education expenses.
Under a special five-year gift rule, you may be eligible to make a special gift-tax election and make NextGen account contributions of $130,000 per couple or $65,000 per individual for each beneficiary in just one year (as long as no additional contributions are made to that beneficiary's account during the five-year period). This makes the NextGen account an effective way to reduce taxes on your estate while making a generous gift to someone special.
Contributions to a NextGen account generally are considered completed gifts and, therefore, not part of your taxable estate.
A NextGen account can be used for eligible expenses at any accredited post-secondary institution that is eligible to participate in student aid programs administered by the U.S. Department of Education, including graduate schools and trade schools.
Eligible expenses include: tuition and fees, room and board (only if student is attending at least half-time), books and required supplies, expenses related to special needs beneficiaries, and in calendar years 2009 and 2010 only, expenses or the purchase of computer technology or equipment or Internet access and related services (only if used by the student while enrolled at an eligible school). Expenses for computer technology and equipment do not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in use.
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High contribution limits
Effective January 1, 2010, the NextGen account contribution limit is $340,000 per beneficiary (adjusted periodically).
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Flexible and affordable contribution minimums
For as little as $50 per month you can make contributions through convenient automated funding options, including payroll deduction. Or, you may make contributions by check to your NextGen account at any time (birthday and holidays, for example) .
Stay in Control of Your Plan
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You can choose from a wide range of investment options that let you benefit from professional investment management provided by multiple fund families. In addition, you may invest in a principal protected option. Click here to learn more about NextGen Investment Options.
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You retain control over the use of the account assets and can change beneficiaries at any time. You also can transfer a portion or the entire account to another beneficiary. However, if assets are withdrawn for nonqualified expenses or you decide to take back the money for yourself, the earnings portion of the withdrawal is subject to state and federal income taxes as ordinary income, plus a 10% penalty. The penalty is waived under the following conditions:
o If the beneficiary receives a scholarship, you can withdraw up to the amount of the scholarship from your account.
o If the beneficiary becomes disabled, you can withdraw up to the account balance.
o If the beneficiary dies, you can withdraw up to the account balance if the withdrawal is paid to the beneficiary's estate.
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You can customize your investment strategy from a wide range of professionally managed portfolios within one account.
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You may change your investment allocations on future contributions at any time and reallocate existing investments once per calendar year and upon the change of the account beneficiary.
Start Investing Early
You may be putting off investing for your child's college education simply because you're overwhelmed by the potential costs. However, a little planning today will go a long way toward providing your child with the gift of a college education. Many parents are surprised to learn that consistently contributing relatively small amounts on a monthly basis can, over time, amount to a substantial college fund. Through the power of tax-deferred compounding, even small amounts invested regularly can potentially grow to larger amounts over time.
Dollar Cost Averaging
By investing money on a regular basis and saving for college early, parents can take advantage of dollar-cost averaging. A time-tested investment strategy, dollar-cost averaging allows an investor to purchase securities in fixed dollar amounts regularly (as little as $50 per month) at fixed intervals regardless of how the security is performing. As a result, you may build a portfolio over time, without trying to predict market cycles.
As you can see by the hypothetical example, making monthly contributions will allow your savings to grow, assuming investments earned a hypothetical 8% rate of return compounded annually.
This chart is for illustration purposes only. It does not reflect an actual investment in the NextGen College Investing Plan or taxes, if any, payable upon withdrawal. Investment of contributions are subject to market, interest rate and other investment risks. Returns on contributions to the NextGen College Investing Plan are not guaranteed and may be less than or greater than the amount invested.
NOTE: Dollar cost averaging and other periodic investments do not assure a profit and do not protect against loss in declining markets. Such a plan involves continuous investment in securities, regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue their purchases through periods of high or low price levels.
Special Benefits for Maine's Residents
At the current time, if the NextGen account owner or account beneficiary is a resident of Maine, FAME expects to provide a rebate approximately equal to the Maine Administration Fee to all accounts with a minimum aggregate balance of $1,000 at the end of the calendar year. FAME also intends to use a portion of the Maine Administration Fee to fund the Scholarship Program, which provides scholarships to certain Maine residents evidencing financial need, and to provide matching grants to eligible accounts opened by a Maine resident or for a designated beneficiary who is a Maine resident. Click on Maine Resident Benefits to learn more.