Tax Benefits

Saving for college with Scholar's Edge may bring a wealth of tax benefits.


  • Investments may grow faster than those in comparable taxable accounts.1
  • Withdrawals are free from federal taxes, and from state taxes where applicable, as long as the money is used for qualified higher education expenses.2
  • Investments may grow faster than those in comparable taxable accounts.1
  • Withdrawals are free from federal taxes, and from state taxes where applicable, as long as the money is used for qualified higher education expenses.2
Tax Benefis Graph Tax Benefis Graph

Scholar's Edge has gift and estate planning advantages as well. Parents and grandparents can contribute and they can also take advantage of five years' worth of tax-free gifts at once4. Completed gifts are removed from their estate for tax purposes, so the money goes toward the child's education, not taxes4.

New Mexico residents can potentially take advantage of state tax deductions when investing in Scholar's Edge3. Residents of several other states may also be eligible for a state tax deduction from their own state when investing in Scholar's Edge4.

Scholar's Edge has gift and estate planning advantages as well. Parents and grandparents can contribute and they can also take advantage of five years' worth of tax-free gifts at once4. Completed gifts are removed from their estate for tax purposes, so the money goes toward the child's education, not taxes4.

New Mexico residents can potentially take advantage of state tax deductions when investing in Scholar's Edge3. Residents of several other states may also be eligible for a state tax deduction from their own state when investing in Scholar's Edge4.


IMPORTANT NOTICE TO NEW MEXICO TAXPAYERS

As a result of federal tax law changes, language was added to Section 529 of the Internal Revenue Code providing that any reference to the term “qualified higher education expense” shall include tuition expenses for K-12 Schools. K-12 Schools are elementary or secondary public, private or religious schools.

Effective January 1, this change in the federal tax law permits Account Owners to withdraw up to $10,000 for tuition expenses from a 529 college savings account for K-12 Schools free of federal taxes. This limitation applies on a per-student basis, rather than a per-account basis. Although an individual may be the designated beneficiary of multiple accounts, that individual may receive a maximum of $10,000 in distributions free of federal tax, regardless of whether the funds are distributed from multiple accounts.

These federal tax law changes also permit transfers from a 529 account to an account in a Qualified ABLE Program made before January 1, 2026, without subjecting the transferred amount to federal income tax on earnings, provided certain conditions are met. ABLE accounts are subject to an annual contribution limit (currently $15,000). Transfers from a 529 account that cause the ABLE account to exceed the $15,000 limit will be subject to federal tax. This provision applies to 529 to ABLE transfers made after December 22, 2017.

Under current New Mexico tax law, contributions to the New Mexico 529 plans by a New Mexico individual taxpayer may be deducted for New Mexico individual income tax purposes and the earnings on such contributions may not be subject to New Mexico income tax. In certain circumstances, the amounts deducted may be recaptured in subsequent years.

By letter, the New Mexico Education Trust Board requested the New Mexico Taxation and Revenue Department to rule on the New Mexico tax consequences pertaining to transfers from New Mexico 529 accounts to ABLE accounts and distributions from such 529 accounts to pay tuition expenses for K-12 Schools. The Board recently received an advisory letter in response to its request.

According to the advisory letter, despite the new federal tax law changes for tuition expenses for K-12 Schools, such K-12 tuition expenses will not constitute qualified higher education expenses under the New Mexico tax code, thereby resulting in a recapture of any deduction related to amounts distributed for such K-12 tuition expenses.

In addition, the advisory letter clarifies that amounts distributed from a New Mexico 529 plan account to a Qualified ABLE program, including the ABLE program offered in the State of New Mexico (notwithstanding that such a transfer is a Qualified Withdrawal for federal tax purposes), will be subject to New Mexico income tax on earnings and distributed amounts previously deducted for New Mexico income tax purposes must be recaptured.

Account Owners who are New Mexico taxpayers should consult their own tax advisors before making withdrawals from a New Mexico 529 plan for K-12 tuition expenses or transferring funds from a New Mexico 529 Plan to a Qualified ABLE Program.

1. If money in a 529 account is used for non-qualified purposes, the earnings portion of the withdrawal will be subject to ordinary federal income tax, plus an additional 10% federal income tax and any applicable state income tax.

2. New Mexico residents who invest in Scholar's Edge can deduct their contributions from their taxable New Mexico income. When it's time to withdraw the funds, New Mexico residents won't owe state taxes as long as the assets are used for qualified higher education expenses.

3. Some states restrict favorable tax treatments to residents who invest in their state's own plan. Before investing through Scholar's Edge, find out if your home state offers any state tax or other benefits that are available only for investments in that state's 529 plan. States that offer tax parity include Arizona, Pennsylvania, Maine, Kansas and Missouri. Source : www.finaid.org, March 2013.

4. Account owners cannot make another tax-free gift to the same beneficiary for five years from the original contribution. If the account owner dies within five years of the funding date, a prorated portion of the contribution allocatable to the remaining years in the five-year period, beginning with the year after the contributor's death, will be included in his or her estate for federal estate purposes. Consult your tax advisor for information about how 529 tax treatment would apply to your situation.

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This material is provided for general and educational purposes only and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or tax advisor regarding your specific legal, investment or tax situation.

Scholar's Edge® is operated as a qualified tuition program offered by The Education Trust Board of New Mexico and is available to all U.S. residents. OFI Private Investments Inc., a subsidiary of OppenheimerFunds, Inc., is the program manager for Scholar's Edge®, and OppenheimerFunds Distributor, Inc. is the distributor of Scholar's Edge®. Some states offer favorable tax treatment to their residents only if they invest in the state's own plan. Investors should consider before investing whether their or their designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Any state-based benefit offered with respect to a particular 529 College Savings Plan should be one of many appropriately weighted factors considered in making an investment decision. You should consult with your tax or other advisor to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. In addition, some states may offer an income tax deduction to any qualified tuition programs. These securities are neither FDIC insured nor guaranteed and may lose value.

Before investing in the Plan, investors should carefully consider the investment objectives, risks, charges and expenses associated with municipal fund securities. The Plan Description contains this and other information about the Plan, and may be obtained by asking your financial advisor, by visiting www.scholarsedge529.com or calling 1.866.529.SAVE (1.866.529.7283). Investors should read these documents carefully before investing.

Account owners do not invest in, and do not have ownership or other rights relating to, the underlying investments. The Plan's underlying investments are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

Scholar's Edge® is distributed by OppenheimerFunds Distributor, Inc. Member FINRA, SIPC
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