529 Plan Basics

So what is a 529 plan? It is a tax-advantaged way to save for education expenses. The cost of a college education is a significant expense and, for some families, could end up costing more than a small home. A 529 plan resembles a Roth IRA. You put after-tax money into the 529 account and invest those funds based on time horizon and risk parameters for the future student. As the money grows, it does so tax free. Then, assuming you withdraw the money under the qualifying guidelines, the withdrawals will also be tax free.

Benefits of a 529 Plan

1. Tax advantages a. Under a special five-year gift rule, you may be eligible to make a special gift-tax election and make larger 529 contributions (up to $80,000 for individuals or $160,000 for married couples in 2022) for each beneficiary in a single year without federal gift tax consequences. This makes 529 plans an effective way to reduce your estate taxes while also making a gift to a child or grandchild. b. Some states also offer tax deductions for 529 contributions.

2. Flexibility a. 529 plans can be transferred to another family member with no age limit for the beneficiary. 3. Favorable financial aid treatment.

4. Withdrawals are tax free when you follow certain guidelines. 5. No income limitations on contributions.

6. 529 plan owners can withdraw up to $10,000 to pay down student loan debt. This is a lifetime limit per beneficiary, not per account. *If a student uses a 529 plan to pay back student loans, the student may not deduct the student loan interest paid in that tax year (which may have otherwise been deductible).

529 Plan Withdrawal Tips (to keep withdrawals tax free)

• Make sure your withdrawals do NOT exceed the student’s adjusted qualified expenses. • Know what expenses qualify – tuition and fees are considered required expenses. Other expenses that may be eligible for tax-free withdrawals include the cost of room and board (for students enrolled at least halftime), books, supplies, computers and internet access. Funds can be withdrawn tax-free to cover rent, food and utilities for students living off-campus; the distribution, however, cannot exceed the room and board allowance the college includes in the cost of attendance. • Keep detailed records of the student’s qualified expenses. • Withdraw funds from your 529 college savings account in the same tax year as you pay the qualified expenses.

“Life is about making an impact, not making an income.” –Kevin Kruse

nextgen 529 Accounts (Maine Residents)

As an incentive to encourage Maine residents to open and fund NextGen 529 accounts, the Finance Authority of Maine (FAME) offers grants regardless of income. To qualify, the account owner or the account beneficiary must be a Maine resident. • A $100 NextGen Initial Matching Grant is available for Maine accounts opened with a contribution of only $25. Note: The Initial Matching Grant was expanded in 2020 to also include accounts opened for children who also received or were eligible for the $500 Alfond Grant. • A $100 NextGen Automated Funding Grant is available for Maine accounts that make at least six consecutive contributions (with contributions made at least quarterly) through automated funding from a bank account or payroll direct deposit. • The NextStep Matching Grant provides a 30% match on contributions, up to $300 per year, with no lifetime maximum. • The $500 Alfond College Challenge Grant continues to be available to open a NextGen account for a Maine resident baby born on or after January 1, 2013. If you have any questions about the 529 plans, please contact us.