Many Maine parents are leaving up to $5400 of college money for their kids in the form of matching grants on the table. In some sad cases, it is because family finances are so tight parents cannot save to meet the matching grants offered by the State of Maine. However, in way too many cases, parents are simply not aware of the opportunity. “Why didn’t I know about this?!” one mother exclaimed during a recent seminar we sponsored that was presented by the Finance Authority of Maine (FAME). “Oh my!” said the lovely FAME representative. “We are trying so hard to reach people! Please pass the word.”

In the spirit of “passing the word”, we are writing this blog. Before we begin, we wish to proclaim that we are not speaking for anyone at FAME or NextGen (Maine’s 529 Plan). . We have no authority to do that. However, this blog reflects our firm’s analysis of the opportunities available to Maine parents, grandparents, aunts, uncles and friends who care about our next generation.

First, almost all states have Section 529 college savings plans. The benefits vary from state to state. In Maine there is no state income tax deduction for funding a 529 plan, but the Maine 529 plan has other redeeming features. There is a $200 one-time participation grant, a $100 one-time grant upon setting up automatic funding from a bank account, and an annual 50% matching grant of up to $300 a year. Also, if the 529 account is set up as a Client Direct account, the fees are reasonable and the investments are sound. It is a good deal!

Consider the example of “Joe”, one of my favorite young Mainers. Joe’s grandmother kicked off his NextGen account shortly after his birth. Because Joe is a Maine resident, he immediately received the $500 Alfond Grant when the account was opened. If Joe had been too old to receive the Alfond Grant, or had he not been a Mainer, with a Maine grandmother establishing the account, Joe would have received a $200 participation grant in lieu of the Alfond Grant. Because Joe’s parents decided to fund his account with automatic monthly payments of $50 from their bank account, Joe’s 529 received a one-time $100 automatic funding grant (once six transfers were completed). Finally, since Joe’s parents contributed a total of $600 a year with their automatic monthly payments, they were able to collect the maximum annual matching grant of $300 a year. If the monthly deposits continue until Joe is 18, his contributions and grants alone will total $16,800.

However, since those contributions are invested, they should grow. We generally recommend that persons establishing a 529 account select the “age related” investment plan. Age related portfolios are generally more aggressively invested when children are young and have time to withstand market volatility. As children approach high school graduation when college or trade school costs loom near, the investments are shifted to a more stable mix. Since an account established 18 years earlier has had years to grow, in all likelihood it will have a value far in excess of the original contributions and grants. In Joe’s specific case, the Alfond Grant alone has grown from $500 to $885.63 – almost a 78% increase over six years.

If the funds are used for accredited higher education costs, the growth will not be taxed at the state or federal levels. There are some limits on how the grant funds may be used. Grant money and the growth thereon must be sent directly to the educational institution, so these funds should be spent first. However, contributions from family and friends can be spent on a variety of educational needs such as books, school supplies, and living expenses. There are additional important details with respect to the 529 rules, but they exceed the scope of this general overview. Suffice it to say, the rules are reasonable and should present no obstacle to taking advantage of this wonderful offer to establish a college savings account.

To get started, go to www.nextgenforme.com . We recommend that you open the account online using the Client Direct Series. The alternative is to go through a Merrill Lynch financial advisor via the Client Select Series. However, the Client Direct Series is less expensive and, in our opinion, is completely adequate so long as you choose the “age related” asset mix as previously described. Both the iShares and Blackrock Funds are solid choices. Once your choices are made, the program will automatically scale back the aggressive funds and increase the defensive funds as the beneficiary nears college age. It is important to know that grandparents, aunts, uncles or friends can establish these accounts and own them for beneficiaries, usually children. Anyone can open a Maine 529 account, but if either the owner or the beneficiary is a Maine resident, then the grant opportunities are available. Although children are usually the beneficiaries, there is no age limit. For example even near retirees can establish a 529 account possibly for some additional education in the next chapter of their lives. There are many possibilities. Our advice is the classic “Just do it!”

We are planning to run the FAME seminar again in February or March 2018. If you would like to be invited, please contact Jean Deighan via email at jeandeighan@deighan.com. As always, if you have questions, or would like to discuss NextGen further, just give us a call at (800) 990-1117.