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Named after Section 529 of the Internal Revenue Code, a 529 plan is an investment account used to pay for a beneficiary’s college expenses. 529 Plans have been available since 1996, but only a 13% of families used them to pay for college in 2016-17, down from 16% the prior year. A family can invest in a 529 plan account without the earnings being taxed as long as the funds are used to pay for qualified expenses.
Few of us can afford to invest the lump sum that it would take to finance a college education years down the road. The total price of paying for college can be decreased by making smart decisions. That's why many investors choose to build a college fund one month at a time, often through a regular automatic investment plan The earlier parents start depositing money into a 529 college savings plan, the more time their money has to grow.
IIS Financial Services is partners with the Next Gen 529 College savings plan that is offered to Maine residents. NextGen is Maine’s Section 529 plan and is administered by the Finance Authority of Maine.If the account owner or the student (beneficiary) is a Maine resident, the NextGen program offers grants that include:
* 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 the Internal Revenue Code. For distributions beginning in 2018, qualified higher education expenses also include limited tuition at elementary or secondary public, private, or religious schools. The earnings portion, if any, of a withdrawal not used for qualified higher education expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as to state and local income taxes. Tax treatment of distributions for elementary and secondary school tuition may differ in some states. Please consult your tax advisor for specific advice regarding such distributions.
There are three things to consider before dipping into retirement savings to pay for college.
The U.S. Department of Agriculture estimates a middle-income family with a child born today can expect to spend about $285,000 to raise that child to the age of 17.¹
It doesn’t take a degree in finance to see the cost of college continues to rise.
1. U.S. Department of Agriculture, 2017