Top 5 NextGen Plan Facts
1. Tax Advantages Can Add Up
Any earnings in a NextGen account have the potential to grow tax-free. And withdrawals, including any earnings, are tax-free, as long as the assets withdrawn are used for qualified higher education expenses.1
If you’re a resident of Maine, you may enjoy even greater tax advantages, as any earnings withdrawn from your account that are used for qualified higher education expenses are also exempt from state income tax, and a state tax deduction up to $250 per beneficiary is available for Maine tax payers.
2. It's Easy When It's Automatic
With the NextGen Plan, you can put your child’s college investing plan on automatic — either through an ongoing payroll deduction or through an automatic debit from a checking or savings account.
3. Baby Steps Can Help Get You There
Once you have opened your account, contributions can be made at any time. Consider automated funding options or add in any birthday checks and holiday gifts and you’re on your way.
4. You're In Control
With the NextGen Client Direct Series, you, as the account owner, choose the investments for your account from a wide range of investment choices. Plus, you can change your investment allocations for future contributions at any time and reallocate existing investments once per calendar year, or whenever you change the account beneficiary.
In addition, you retain ownership over funds in the account and can change beneficiaries or transfer a portion or the entire amount in the account to another beneficiary.2
5. Grandparents, Family and Friends Can Help Make a Difference
NextGen is not for parents alone — grandparents, other family members and even family friends are welcome to open or contribute to a NextGen account to help pay for college. NextGen can be a great place to invest funds from birthday presents and holiday gifts — so much more meaningful than the toy that may not stay popular, or the gift card that can be so impersonal.
Grandparents, in particular, might be interested in a special gift-tax election. Contributions of up to $130,000 per married couple or up to $65,000 per individual may be made to a beneficiary in just one year and prorated over five years (as long as no additional cash gifts are made to that beneficiary during the five-year period).3 These contributions are generally considered completed gifts and, therefore, not a part of a taxable estate for estate tax purposes.
Please remember there is always the potential of losing money when you invest in securities.
1 Withdrawals must be used for “qualified higher education expenses,” as defined in the Internal Revenue Code. Any earnings portion of funds not used for such qualified expenses are subject to federal income tax and an additional 10% federal tax, and possibly state and local income tax.
2 Some restrictions apply. You are generally permitted to change the beneficiary to another qualified member of the family, as defined under the Internal Revenue Code, without triggering income tax and penalty. Not applicable for accounts opened under a Uniform Gifts/Transfers to Minors Act registration.
3 Contributions between $13,000–$65,000 ($26,000–$130,000 for married couples filing jointly) made in one year can be prorated over a five-year period without incurring gift taxes or reducing your federal unified estate and gift tax credit. If you contribute less than the $65,000 ($130,000 for married couples filing jointly) maximum, additional contributions can be made without incurring federal gift taxes, up to a prorated level of $13,000 ($26,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given Beneficiary in the year of contribution. For contributions between $13,000–$65,000 ($26,000–$130,000 for married couples filing jointly) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in his or her taxable estate. Please consult your tax and/or legal advisor for such guidance.
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