Friday, 2 June 2023
Updated on Friday, August 6, 2021
If you’re looking for the best 529 plans Maryland offers, you have two options: the Maryland Prepaid College Trust and the Maryland College Investment Plan. The former is a prepaid college trust, where you pay in advance for your child’s tuition and fees, while the latter is a 529 plan, where your contributions are invested.
Both Maryland plans allow you to save for your child’s future education costs and enjoy valuable tax benefits. With each option, you can qualify for up to $2,500 in state income deductions.
| Maryland 529 college savings plans | ||
|---|---|---|
| Maryland 529 Senator Edward J. Kasemeyer Prepaid College Trust | Maryland 529 Senator Edward J. Kasemeyer College Investment Plan | |
| Program type | Prepaid tuition plan | Prepaid tuition plan |
| Maximum fund amount | Up to seven years at a four-year college per beneficiary | Up to $500,000 per beneficiary |
| Minimum deposit amount | Multiple payment options | $25 |
| Residency requirements | Either the account holder or beneficiary must be a resident of Maryland or Washington, D.C. | No residency requirements |
| How to enroll | Enroll during open enrollment, from December until June; you can enroll a newborn at any time | Enroll any time at Maryland529.com |
The Maryland 529 Prepaid College Trust is a program where you prepay for your child’s tuition and fees. You can essentially lock in future tuition prices at today’s rates. For Maryland public colleges, the plan will cover the full in-state or in-county tuition and fees, while for private or out-of-state colleges, it will cover the greater of your weighted average tuition or your minimum benefit. The Maryland 529 Prepaid College Trust is backed by a Maryland Legislative Guarantee, meaning if the trust ever experiences a shortfall, the state budget will pay your full benefit.
You can start with just one semester at a four-year or community college, and then add additional semesters or years over time. Family and friends can make gift contributions, covering some of the cost.
As of 2020-2021, a lump sum payment for an infant would be $11,780 per year. However, there are multiple payment options available:
You can sign up for a Maryland 529 Prepaid College Trust account during the open enrollment period that runs from December through June. If you are opening an account for a newborn, you can enroll at any time during the year.
You can enroll online on the Maryland529.com website.
Unlike the prepaid college trust option, the Maryland 529 College Investment Plan is an education savings account. You make contributions into the account, and your money is invested in money market mutual funds, stocks and bonds to save for the beneficiary’s education. The plan offers enrollment-based portfolios, where you invest based on the year you expect your child to enter school, and fixed portfolios, with six different asset allocation options that have varying levels of risk and opportunities for return.
The 529 plan rules are different from those of a prepaid tuition plan. With a 529 plan, you can use the savings to pay for education expenses at any school in the U.S., including tuition, room and board and even textbooks.
While primarily used to save for college, up to $10,000 per year per beneficiary can be used to pay for tuition at elementary or secondary schools. The money in the account can also be used to pay up to $10,000 in student loan debt.
You can open an account with as little as $25, and accounts can be opened online through T. Rowe Price Investment Services, the investment firm that professionally manages the investment options available.
Lower- and middle-income families in Maryland may be eligible for Save4College State
Contribution Program, the Maryland 529 state contribution program. If you qualify, the state will contribute up to $500 toward a Maryland 520 College Investment Plan for the beneficiary. That money can grow over time, and it can be used to pay for the beneficiary’s education expenses.
To qualify, you must open a Maryland College Investment Plan and make at least a minimum contribution determined by your income. There are income restrictions for this program; you are only eligible if you make under $112,500 per year ($175,000 per year if married filing jointly). The state contribution is based on the account holder’s information, and a beneficiary can receive up to two state contributions per year for a maximum of $1,000 in state contributions.
| State contributions based on Maryland taxable income | |||
|---|---|---|---|
|
Individual income |
Joint income |
Minimum contribution required |
State contribution |
| $49,999 or less | $74,999 or less | $25 | $500 |
| $50,000 to $87,499 | $75,000 to $124,999 | $100 | $500 |
| $87,500 to $112,500 | $125,000 to $175,000 | $250 | $250 |
To apply for a Maryland state contribution, you must submit an application between Jan. 1 and May 31. Additionally, applicants must file their taxes in Maryland by the state deadline. You can apply online at https://maryland529.com/Save4College.
| Best for… | Drawbacks | |
|---|---|---|
| Prepaid College Trust |
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| College Investment Plan |
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There are several key differences to keep in mind when deciding on a Maryland 529 plan:
Note that you don’t necessarily have to choose one plan over another either. It’s also an option to use both plans to save for your child’s college education. For example, you could use the College Prepaid Trust to help cover tuition and fees, while putting funds in the College Investment Plan toward room and board, books or additional tuition costs at private or out-of-state colleges.
| Maximum annual state deduction (Maryland state 529 accounts) | Single filers: Each account holder can deduct up to $2,500 per year from Maryland state income per account for the Prepaid College Trust and per beneficiary for the College Investment Plan
Joint filers: Married couples can deduct up to $5,000 per year from Maryland state income per account for the Prepaid College Trust and per beneficiary for the College Investment Plan |
| Maximum annual state deduction (non-Maryland state 529 accounts) | Out-of-state 529 plans are not eligible for Maryland state income deductions |
| Requirements | Must pay Maryland state income taxes |
Investing money in a 529 plan can help pay for your child’s college education, but there are also tax benefits for you.
When you contribute to a Maryland 529 plan, the earnings on your contributions are tax-deferred at the federal and state level. When your child starts taking distributions, the earnings are tax-free if the money is used for qualified education expenses, such as tuition or school-required fees.
If you pay Maryland state income taxes, your contributions are also deductible on your state tax return. With the prepaid tuition option, you can deduct up to $2,500 of contributions per account purchased, or $5,000 if you are married and file a joint return. If you contribute more than $2,500 in a single year, you can deduct the remaining amounts in future years. With the education savings plan, you can deduct up to $2,500 in contributions per year per beneficiary.
The deductions apply to the individuals who made the contributions, and are not dependent on where the beneficiary attends school.
With both Maryland 529 plans, you can decide to attend an out-of-state school. The money you’ve saved can be used nationwide. However, the College Prepaid Trust will likely pay less than the total cost; it will pay the state-calculated weighted tuition average or a maximum benefit, whichever is greater.
The College Investment Plan doesn’t have the same limitations. It can be used at any school for tuition, room and board, textbooks and other fees.
If you have an existing Maryland 529 account and want to transfer it to another state’s plan, you can typically do so without incurring taxes or penalties. The amount usually has to be rolled over within 60 days after the distribution, and the new account must be for the same beneficiary or a family member of the original beneficiary. Consult with a financial advisor to see which 529 plan makes the most sense for your needs.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.
Source: https://www.magnifymoney.com/blog/investing/maryland-529-plan/
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