Federal Taxation of Section 529 Programs. The following discussion is based on the Code, Proposed Regulations, IRS published guidance and interpretations of applicable federal and Maine law existing on the date of this Program Description and Participation Agreement. It is possible that Congress, the Treasury Department, the IRS, or the courts may take actions that will affect the Code and Proposed Regulations and interpretations thereof. FAME and the Program Manager intend to modify the Program from time to time within the constraints of applicable law to enable the Program to continue to meet the requirements of Section 529 of the Code. In the event that the Program, as currently structured or as subsequently modified, does not meet the requirements of Section 529 of the Code for any reason, the tax consequences to Participants and Designated Beneficiaries will differ from those described below. Future state legislation may likewise affect the state tax treatment of Participants and Designated Beneficiaries in connection with the Program. See “Taxation by Other States.” Contributions, Earnings and Withdrawals — Contributions to Section 529 Programs are not deductible for federal income tax purposes. Earnings that accumulate in an Account and are not withdrawn are not subject to federal income tax. In addition, earnings on Contributions are not subject to federal income tax to the extent that they are withdrawn from an Account and used for Qualified Higher Education Expenses of the Designated Beneficiary (or of a sibling of the Designated Beneficiary with respect to Qualified Higher Education Expenses constituting the repayment of qualified education loans). While Qualified Withdrawals are exempt from federal income tax, the earnings portion of Non-Qualified Withdrawals will generally be subject to federal income tax, including a 10% additional federal tax on earnings. If the amount withdrawn exceeds the Designated Beneficiary’s Qualified Higher Education Expenses, the amount includible as ordinary income in computing the distributee’s federal taxable income is the earnings portion of the withdrawal reduced by an amount which bears the same ratio to the earnings portion of the amount withdrawn as the Designated Beneficiary’s Qualified Higher Education Expenses paid by the withdrawal from the Account bears to the amount of such withdrawal. If an Eligible Institution of Higher Education refunds any portion of an amount previously withdrawn from an Account and treated as a Qualified Withdrawal, unless such amount is recontributed to a Section 529 Program for the same Designated Beneficiary not later than 60 days after the date of the refund, the distributee may be required to treat the amount of the refund as a Non- Withdrawals not used for Qualified Higher Education Expenses of the Family and see “Federal Gift, Estate and Generation — consist of two parts for federal income tax purposes. A part of Skipping Transfer Taxes” for certain additional information the withdrawal will be treated as a non-taxable return of principal about changes of Designated Beneficiaries. and the remainder will be treated as a taxable withdrawal of earnings. The earnings portion of a withdrawal will be treated A Participant may also rollover amounts under an Account to a as ordinary income to the individual who is considered to have Section 529A Qualified ABLE Program (“ABLE”) for the same received the distribution. A 10% additional federal tax also will Designated Beneficiary, or a Member of the Family thereof, be imposed on the earnings portion of the Non-Qualified federal income tax-free, subject to satisfaction of eligibility Withdrawal; however, there are certain exceptions to the requirements for ABLE accounts and applicable ABLE imposition of the 10% additional tax. The exceptions are: (i) contribution limits. Distributions from an Account in connection withdrawals paid to a beneficiary of the Designated Beneficiary with any such rollover must occur before January 1, 2026. or to the Designated Beneficiary’s estate made on account of
Appears in 2 contracts
Federal Taxation of Section 529 Programs. The following discussion is based on the Code, Proposed Regulations, IRS published guidance and interpretations of applicable federal and Maine law existing on the date of this Program Description and Participation Agreement. It is possible that Congress, the Treasury Department, the IRS, or the courts may take actions that will affect the Code and Proposed Regulations and interpretations thereof. FAME and the Program Manager intend to modify the Program from time to time within the constraints of applicable law to enable the Program to continue to meet the requirements of Section 529 of the Code. In the event that the Program, as currently structured or as subsequently modified, does not meet the requirements of Section 529 of the Code for any reason, the tax consequences to Participants and Designated Beneficiaries will differ from those described below. Future state legislation may likewise affect the state tax treatment of Participants and Designated Beneficiaries in connection with the Program. See “Taxation by Other States.” Contributions, Earnings and Withdrawals — Contributions to Section 529 Programs are not deductible for federal income tax purposes. Earnings that accumulate in an Account and are not withdrawn are not subject to federal income tax. In addition, earnings on Contributions are not subject to federal income tax to the extent that they are withdrawn from an Account and used for Qualified Higher Education Expenses of the Designated Beneficiary (or of a sibling of the Designated Beneficiary with respect to Qualified Higher Education Expenses constituting the repayment of qualified education loans). While Qualified Withdrawals are exempt from federal income tax, the earnings portion of Non-Qualified Withdrawals will generally be subject to federal income tax, including a 10% additional federal tax on earnings. If the amount withdrawn exceeds the Designated Beneficiary’s Qualified Higher Education Expenses, the amount includible as ordinary income in computing the distributee’s federal taxable income is the earnings portion of the withdrawal reduced by an amount which bears the same ratio to the earnings portion of the amount withdrawn as the Designated Beneficiary’s Qualified Higher Education Expenses paid by the withdrawal from the Account bears to the amount of such withdrawal. If an Eligible Institution of Higher Education refunds any portion of an amount previously withdrawn from an Account and treated as a Qualified Withdrawal, unless such amount is recontributed to a Section 529 Program for the same Designated Beneficiary not later than 60 days after the date of the refund, the distributee may be required to treat the amount of the refund as a Non- Qualified Withdrawal for purposes of federal income tax. Different treatment may apply if the refund is used to pay other Qualified Higher Education Expenses of the Designated Beneficiary. Withdrawals not used for Qualified Higher Education Expenses of the Family and see “Federal Gift, Estate and Generation — consist of two parts for federal income tax purposes. A part of Skipping Transfer Taxes” for certain additional information the withdrawal will be treated as a non-taxable return of principal about changes of Designated Beneficiaries. and the remainder will be treated as a taxable withdrawal of earnings. The earnings portion of a withdrawal will be treated A Participant may also rollover amounts under an Account to a as ordinary income to the individual who is considered to have Section 529A Qualified ABLE Program (“ABLE”) for the same received the distribution. A 10% additional federal tax also will Designated Beneficiary, or a Member of the Family thereof, be imposed on the earnings portion of the Non-Qualified federal income tax-free, subject to satisfaction of eligibility Withdrawal; however, there are certain exceptions to the requirements for ABLE accounts and applicable ABLE imposition of the 10% additional tax. The exceptions are: (i) withdrawals paid to a beneficiary of the Designated Beneficiary or to the Designated Beneficiary’s estate made on account of the death of the Designated Beneficiary; (ii) withdrawals made on account of the disability (within the meaning of section 72(m)(7) of the Code) of the Designated Beneficiary; (iii) withdrawals made on account of a scholarship received by the Designated Beneficiary, provided withdrawals do not exceed the amount of the scholarship; (iv) withdrawals made on account of a reduction in the amount of Qualified Higher Education Expenses solely because of expenses taken into account in determining the Education Tax Credits allowed under federal income tax law and (v) withdrawals made on account of the attendance of the Designated Beneficiary at certain specified military academies. See “PARTICIPATION AND ACCOUNTS - Non-Qualified Withdrawals and the Additional Tax.” The proportion of Contributions and earnings for each withdrawal is determined based on the relative portions of earnings and Contributions as of the withdrawal date for the Account from which the withdrawal was made. Qualifying Rollovers — Qualifying rollovers are not subject to federal income tax, including the 10% additional federal tax, on earnings. A Participant may roll over all or part of the balance of an Account to another Section 529 Program that accepts rollovers without subjecting the rollover amount to federal income tax, provided certain conditions are met (i) the amount withdrawn must be placed in another Section 529 Program within 60 days of the withdrawal; and (ii) the designated beneficiary of the receiving Section 529 Program account must be the same Designated Beneficiary (with no other rollover to a Section 529 Program having occurred for the same Designated Beneficiary in the preceding 12 months) or a Member of the Family of the current Designated Beneficiary. Provided appropriate documentation is received by the Section 529 Program receiving the rollover, the portion of the rollover which represents earnings will be added to the earnings portion of the receiving account and amounts representing Contributions will be added to the contribution portion of the receiving Section 529 Program account. See “PARTICIPATION AND ACCOUNTS - Change of Designated Beneficiary” for the definition of Member of the Family and see “Federal Gift, Estate and Generation — Skipping Transfer Taxes” for certain additional information about changes of Designated Beneficiaries. A Participant may also rollover amounts in an Account to a Section 529A Qualified ABLE Program (“ABLE”) for the same Designated Beneficiary, or a Member of the Family thereof, federal income tax-free, subject to satisfaction of eligibility requirements for ABLE accounts and applicable ABLE contribution limits. Distributions from an Account in connection withdrawals paid to a beneficiary of the Designated Beneficiary with any such rollover must occur before January 1, 2026. or Starting January 1, 2024, a Participant may also rollover amounts in an Account to a Xxxx XXX -- subject to certain conditions (a “529-to-Xxxx XXX Rollover”) The conditions include, but are not limited to, the following: (i) The Account must have been maintained for the 15-year period ending on the date of the 529-to-Xxxx XXX Rollover; (ii) The 529-to-Xxxx XXX Rollover must be made in a direct trustee-to-trustee transfer to a Xxxx XXX maintained for the benefit of the same designated beneficiary as the Designated Beneficiary of the Account (not the Participant – if different); (iii) Each year, the 529-to-Xxxx XXX Rollover will be subject to annual IRA contribution limits, minus all other IRA contributions made during the year for the same designated beneficiary. In addition, such rollovers may not exceed the amount of compensation the designated beneficiary earned during the year; (iv) The amount of the 529-to-Xxxx XXX Rollover may not exceed the aggregate amount contributed to the Designated Beneficiary’s estate made Account (and earnings attributable thereto) before the 5- year period ending on account ofthe date of such rollover; (v) The aggregate amount of 529-to-Xxxx XXX Rollovers for the same designated beneficiary may not exceed $35,000; and (vi) Xxxx XXX income limitations are waived for 529-to-Xxxx XXX Rollovers. The information presented in this Program Disclosure Statement on 529-to-Xxxx IRAs Rollovers is based on a good faith interpretation of federal legislation enacted in December, 2022. Please consult with your financial professional or tax advisor regarding the applicability of 529-to-Xxxx XXX Rollovers to your personal situation.
Appears in 1 contract
Samples: Participation Agreement
Federal Taxation of Section 529 Programs. The following discussion is based on the Code, Proposed Regulations, IRS published guidance and interpretations of applicable federal and Maine law existing on the date of this Program Description and Participation Agreement. It is possible that Congress, the Treasury Department, the IRS, or the courts may take actions that will affect the Code and Proposed Regulations and interpretations thereof. FAME and the Program Manager intend to modify the Program from time to time within the constraints of applicable law to enable the Program to continue to meet the requirements of Section 529 of the Code. In the event that the Program, as currently structured or as subsequently modified, does not meet the requirements of Section 529 of the Code for any reason, the tax consequences to Participants and Designated Beneficiaries will differ from those described below. Future state legislation may likewise affect the state tax treatment of Participants and Designated Beneficiaries in connection with the Program. See “Taxation by Other States.” Contributions, Earnings and Withdrawals — Contributions to Section 529 Programs are not deductible for federal income tax purposes. Earnings that accumulate in an Account and are not withdrawn are not subject to federal income tax. In addition, earnings on Contributions are not subject to federal income tax to the extent that they are withdrawn from an Account and used for Qualified Higher Education Expenses of the Designated Beneficiary (or of a sibling of the Designated Beneficiary with respect to Qualified Higher Education Expenses constituting the repayment of qualified education loans). While Qualified Withdrawals are exempt from federal income tax, the earnings portion of Non-Qualified Withdrawals will generally be subject to federal income tax, including a 10% additional federal tax on earnings. If the amount withdrawn exceeds the Designated Beneficiary’s Qualified Higher Education Expenses, the amount includible as ordinary income in computing the distributee’s federal taxable income is the earnings portion of the withdrawal reduced by an amount which bears the same ratio to the earnings portion of the amount withdrawn as the Designated Beneficiary’s Qualified Higher Education Expenses paid by the withdrawal from the Account bears to the amount of such withdrawal. If an Eligible Institution of Higher Education refunds any portion of an amount previously withdrawn from an Account and treated as a Qualified Withdrawal, unless such amount is recontributed to a Section 529 Program for the same Designated Beneficiary not later than 60 days after the date of the refund, the distributee may be required to treat the amount of the refund as a Non- Qualified Withdrawal for purposes of federal income tax. Different treatment may apply if the refund is used to pay other Qualified Higher Education Expenses of the Designated Beneficiary. Withdrawals not used for Qualified Higher Education Expenses of the Family and see “Federal Gift, Estate and Generation — consist of two parts for federal income tax purposes. A part of Skipping Transfer Taxes” for certain additional information the withdrawal will be treated as a non-taxable return of principal about changes of Designated Beneficiaries. and the remainder will be treated as a taxable withdrawal of earnings. The earnings portion of a withdrawal will be treated A Participant may also rollover amounts under an Account to a as ordinary income to the individual who is considered to have Section 529A Qualified ABLE Program (“ABLE”) for the same received the distribution. A 10% additional federal tax also will Designated Beneficiary, or a Member of the Family thereof, be imposed on the earnings portion of the Non-Qualified federal income tax-free, subject to satisfaction of eligibility Withdrawal; however, there are certain exceptions to the requirements for ABLE accounts and applicable ABLE imposition of the 10% additional tax. The exceptions are: (i) withdrawals paid to a beneficiary of the Designated Beneficiary or to the Designated Beneficiary’s estate made on account of the death of the Designated Beneficiary; (ii) withdrawals made on account of the disability (within the meaning of section 72(m)(7) of the Code) of the Designated Beneficiary; (iii) withdrawals made on account of a scholarship received by the Designated Beneficiary, provided withdrawals do not exceed the amount of the scholarship; (iv) withdrawals made on account of a reduction in the amount of Qualified Higher Education Expenses solely because of expenses taken into account in determining the Education Tax Credits allowed under federal income tax law and (v) withdrawals made on account of the attendance of the Designated Beneficiary at certain specified military academies. See “PARTICIPATION AND ACCOUNTS - Non-Qualified Withdrawals and the Additional Tax.” The proportion of Contributions and earnings for each withdrawal is determined based on the relative portions of earnings and Contributions as of the withdrawal date for the Account from which the withdrawal was made. Qualifying Rollovers — Qualifying rollovers are not subject to federal income tax, including the 10% additional federal tax, on earnings. A Participant may roll over all or part of the balance of an Account to another Section 529 Program that accepts rollovers without subjecting the rollover amount to federal income tax, provided certain conditions are met (i) the amount withdrawn must be placed in another Section 529 Program within 60 days of the withdrawal; and (ii) the designated beneficiary of the receiving Section 529 Program account must be the same Designated Beneficiary (with no other rollover to a Section 529 Program having occurred for the same Designated Beneficiary in the preceding 12 months) or a Member of the Family of the current Designated Beneficiary. Provided appropriate documentation is received by the Section 529 Program receiving the rollover, the portion of the rollover which represents earnings will be added to the earnings portion of the receiving account and amounts representing Contributions will be added to the contribution portion of the receiving Section 529 Program account. See “PARTICIPATION AND ACCOUNTS - Change of Designated Beneficiary” for the definition of Member of the Family and see “Federal Gift, Estate and Generation — Skipping Transfer Taxes” for certain additional information about changes of Designated Beneficiaries. A Participant may also rollover amounts under an Account to a Section 529A Qualified ABLE Program (“ABLE”) for the same Designated Beneficiary, or a Member of the Family thereof, federal income tax-free, subject to satisfaction of eligibility requirements for ABLE accounts and applicable ABLE contribution limits. Distributions from an Account in connection withdrawals paid to a beneficiary of the Designated Beneficiary with any such rollover must occur before January 1, 2026. or to the Designated Beneficiary’s estate made on account of.
Appears in 1 contract
Samples: Nextgen 529 Client Direct Series Program Description and Participation Agreement
