The advantages of grandparent-owned 529 plans
529 plans such as the NextGen 529 Education Savings Plan are particularly popular with grandparents because the plans offer the opportunity to build an educational legacy for grandchildren while also offering considerable tax and estate planning benefits, including:
- If you're a grandparent and a Maine Resident, but your grandchildren live out of state, you are eligible for grant money. See list of Grants.(Grants are limited to one per beneficiary/child).
- A new Maine law went into effect in 2023, reinstating and increasing the state income tax deduction for contributions to any 529 education savings plan, providing a deduction of up to $1,000 per student for Maine State taxpayers.
- Retain control over the assets in the account while the total value of the accounts owned, with a child or grandchild as beneficiary, is removed from their taxable estate (contributions are considered completed gifts).
- Contributions qualify for the federal gift tax exclusion of up to $36,000 (joint tax filers) or $18,000 (single filers) per year per beneficiary. (2024)
- Accelerated gifting, a feature unique to 529 plans, allows account owners to make five years' worth of tax-free gifts in one year but only once every five years, meaning they can make a lump-sum contribution of up to $180,000 (joint) or $90,000 (single) and pro-rate the federal gift tax exclusion over five years.1
What's more, grandparent-owned 529s no longer diminish student federal aid. Effective with the 2024/2025 award year, distributions from grandparent-owned 529 accounts are no longer considered student income when applying for financial aid via the FAFSA application. Therefore, do not impact a student's eligibility for need-based aid.2
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Investors should consider the investment objectives, risks, charges, and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 Plan.