Section 529 plans are accounts that offer tax advantages for educational savings and allow families to begin contributing to a child’s college fund as soon as a baby is born. Such accounts can receive contributions from parents, family members, and friends (to a certain dollar amount each year), and grows free of taxation. All withdrawals used for qualified educational expenses are also exempt from federal income tax. For some families, that can mean less stress about applying for financial aid or searching for scholarships.
529 Plans for Those Living in Maryland
Maryland has 97 colleges and universities, with annual tuition, books, and housing costs averaging approximately $6,592 (in-state), $13,994 (out-of-state), or $30,650 (private) depending on the type of institution in which a student is enrolled. Maryland529 (formerly College Savings Plans of Maryland) is a fund offered directly by the state rather than by third-party financial institutions. The plan offers two options:
Tax Benefits
Maryland offers a tax deduction to residents for contributing to a 529 savings plan. Each account holder or contributor may deduct up to $2,500 in 529 contributions annually per savings plan. That means $5,000 for two accounts, $7,500 for three, for example. Payments in excess of $2,500 per account can be deducted in future years. The maximum you can have in a 529 savings plan in Maryland is $500,000.
The savings can be used at nearly any college nationwide (not eligible for K-12 tuition expenses) Investments can be made until a child turns 18 (although accounts must be open for at least three years before tuition benefits can begin being paid) Plans are backed by a Maryland Legislative Guarantee Donors are eligible for state and federal tax benefits
An account can be established with as little as $25. Investments are payable for the educational costs of children or adults of any age. Accounts are eligible for state and federal tax benefits, including tax-deferred growth and tax-free withdrawals when the account is used for qualified education expenses. Benefits can be used at most colleges, trade/technical schools, or K-12 schools in the U.S. (as well as some international schools).
Contributions
Anyone who is a U.S. citizen or legal resident can contribute to the savings plan on behalf of a student so long as they are over age 18. For the College Investment Plan, there are no state residency requirements. For the Prepaid College Trust, either the account holder or the beneficiary must be a resident of Maryland or Washington, D.C., when the account is opened.
Other Considerations
There are no age restrictions on the savings plan, so if the student chooses to delay school, the savings plan would remain in place. This is a great option for students who want to travel, take a gap year, or start their careers before going to college. If the student decides not to pursue higher education, the family can change the beneficiary of the account to someone else, like a sibling or cousin. The 529 savings plan is designed only to be used to pay for school expenses like tuition, room, and board. If a student decides against college and wants to withdraw money from the account, the funds will be subject to taxes and additional penalties.
