ATTENTION PARENTS AND GRANDPARENTS!

There has NEVER been a better time to save for college costs for a child or grandchild. NextGen, the State of Maine sponsored tax-advantaged college savings program and other state plans are know collectively as Section 529 plans and are designed to save for higher education expenses. They have been around for several years now as a tax-advantaged way to save for college costs. These plans offer potential TAX-FREE growth (both Federally AND State), high contribution limits, favorable financial aid treatment (the account is NOT counted as an asset of the child’s), and strong control of the account by the adult. They are generally more favorable as a way to save for college costs when compared to traditional custodial accounts or even Education IRA’s. Education IRA’s are now known as Coverdell Education Savings Accounts and offer contribution limits of up to $2,000 and the ability to use them tax-free for private K-12 Education costs for higher education/college costs. The flexibility of investment choices and being able to use the funds for K-12 Education (rather then just college) are certainly nice, but the $2,000 limit in annual contributions is too low to put a major dent in the costs of college these days.

The tax-fee growth of NextGen or other 529 Plans applies as long as withdrawals from the plan are used for qualified higher education expenses at an accredited institution. The child does NOT have to go to a Maine college to get this benefit. This is a phenomenal benefit and anyone with a young child or grandchild should consider opening up a 529 account for them. If a 529 Plan is liquidated for something other then higher education costs, then taxes are due on any gains and there is a 10% penalty on those gains as well.

Maine’s NextGen plan is available to ANY U.S. resident, regardless of income level or state of residence. Accounts can be started with as little as a $250 lump sum or $50/month through an automatic investing plan. Contribution limits to the plan are a very high $290,000 per child over the lifetime of the account. Contributions can be invested among four different money management firms (MFS, Franklin-Templeton, Oppenheimer and Merrill Lynch) who each offer several different investment choices.

As an incentive to encourage Maine residents to open NextGen accounts, the Finance Authority of Maine (FAME) will be offering a $200 match to new accounts (opened with as little as $50) as long as the controlling person (participant) on the account has an Adjusted Gross Income (AGI) of less then $50,000. In addition to the income requirement, either the adult/participant or the child/beneficiary has to be a Maine resident to receive the free match money. Future years’ contributions will be matched at 50% up to $200 (i.e. you put in $400 and they will put in $200) as long as the AGI limits are met. If a parent’s or grandparent’s income is too high to meet the less than $50,000 AGI, one might consider having the account opened in the name of a trusted relative who meets that lower income requirement.

Every child in the State of Maine with higher education aspirations should have a NextGen account, in order to take advantage of the ‘free” match money from FAME.

Please contact your financial advisor for more information regarding NextGen Funds or got to the State of Maine Web Site at www.nextgenplan.com/index.htm. If you need assistance, please do not hesitate to contact the PCHS Guidance Office at 876-4625 or my office at 876-3444.

Thanks for considering this important opportunity to plan for the educational future of your loved ones.

Paul Stearns

SAD #4 Superintendent