Qualified tuition plans, more commonly known as 529 plans, offer parents and other relatives a tax-advantage way to save money for college. Taxpayers can fund a 529 plan only with after tax dollars, but the money in the plan grows tax-free, and can be withdrawn tax-free if used for qualifying educational expenses. There’s a link in the resource section with more information about 529 plans generally, but the purpose of this post is to highlight a few of the Maine-specific incentives to invest in Maine’s version of 529 plans, called NextGen plans:
Maine 529 Plan Incentives
State-specific advantages to Maine’s 529 plans include:
- A state income tax deduction for the first $250 contributed each year.
- A $500 grant provided by the Harold Alfond College Challenge for babies born in Maine.
- A $200 grant from the Finance Authority of Maine (FAME) for children with Maine ties who did not get the $500 grant.
- A 50% matching grant from FAME on the first $200 each year for beneficiaries with Maine ties.
- A $50 grant from FAME for establishing automatic funding and making 6 consecutive automatic funding transactions.
It’s worth noting that only one of these incentives is tax-related. The rest are matching grants offered by a non-profit organization.
Maine 529 Plan Deduction
Maine offers a state income tax deduction for the first $250 contributed to a 529 plan each year. It’s not much of a tax benefit – only about $20 in savings if you happen to be in the top tax bracket of 7.95%, but if you’re going to contribute to a college savings plan anyway, it’s worth remembering to get your deduction on the state return.
Harold Alfond Foundation - 500 For Baby
Warren Buffet has called his purchase of Dexter Shoes his worst deal ever, but the proceeds of the deal have been put to good use. The founder of Dexter Shoes, Harold Alfond, was extremely charitable both before and after the sale. The Harold Alfond Foundation offers a grant of $500 towards college for any baby born in Maine. Originally, the parents needed to complete the appropriate paperwork within the child’s first year, and the foundation funded the account with $500.
Because this grant is so generous, so well publicized, and so easy to claim, it’s difficult to imagine anyone passing up on it – but many did. According to the Bangor Daily News, fewer than half of new parents were claiming the $500 grant for their eligible newborns, and more recent comments from the Harold Alfond Foundation put that number at around 40%. That’s why they’ve now changed the grant – retroactive to January 1, 2013 – and are awarding it based on birth records with no paperwork required from the parents. The Finance Authority of Maine will maintain these grants in one account, and then pay them directly to the college the child chooses to attend.
$200 Initial Matching Grant
If fewer than half of Maine parents are claiming the $500 grant for eligible newborns, many fewer are claiming the $200 initial grant. This is a $200 grant for NextGen accounts opened after January 1, 2011 by a Maine resident or for the benefit of a Maine child. The child can’t be eligible for the $500 for Baby grant, and there’s only one initial matching grant allowed for each child.
One of the things that’s so great about his grant is that its available to basically any child with Maine ties, because only the beneficiary or the person opening the account needs to be a Maine resident. This means that grandparents in Maine can get the grant for opening a NextGen account for a child in Florida, and grandparents in Florid could get the grant for opening an account for a child in Maine.
NextStep Matching Grant
In addition to the grants mentioned previously, the Finance Authority of Maine also administers the NextStep Matching Grant program. Under this program, FAME awards a 50% matching grant on the first$200 contributed to a beneficiary’s NextGen plan each year. Only one NextStep grant is awarded per beneficiary each year, and the total of the NextStep grants for one beneficiary is limited to $1,000 in total.
$50 Automated Funding Grant
The $50 Automated Funding Grant is available to NextGen accounts that are owned by Maine residents or opened for the benefit of a Maine resident. After six consecutive automated contributions are made to the account, the Finance Authority of Maine awards a $50 matching grant. As with the other grants, only one Automated Funding Grant is allowed per account, but this grant is in addition to the Harold Alfond grant or the Initial Matching Grant, if applicable.
Altogether, the Harold Alfond College Challenge, NextStep Matching Grant, and Automated Funding grant can be worth up to $1,550 in grants to a Maine child’s 529 plan. Residents who don’t qualify for the $500 grant are eligible for FAME grants worth up to $1,250. Only the $500 Harold Alfond Grant is automatic. The rest of the grants are triggered by opening and funding a NextGen plan. Maine taxpayers can also benefit from a state income tax deduction for their contributions to a 529 plan, of up to $250 each year. Additionally, these amounts can be expected to grow once they’re invested in the account, offering Maine college students a significant boost to their college savings.