Do you want to start saving for your child’s college education? The earlier you start saving, the more time your money has to grow. A 529 is a tax-advantaged savings plan designed specifically for education expenses. We are going to cover the Maryland 529 plan in depth so that you can decide if it’s the right college savings plan for your family.
Does Maryland have a 529 plan?
Yes, Maryland has a 529 Plan. Maryland’s Plan is called the Maryland 529 (MD 529). The plan is managed by T. Rowe Price. It offers multiple investment options which include age-based portfolios and individual portfolios comprised of mutual funds.
How does a 529 plan work in Maryland?
To open an account, go to the Maryland 529 website and open a 529 plan. The parent (or grandparent, or other adult) is the owner of the account, and the child is usually the beneficiary. Money can be added to the plan from anyone at any time. Plan funds are invested however the owner would like to invest them. When the child is ready for qualifying education expenses to be paid, money can be withdrawn from the plan tax-free.
What is the maximum contribution amount for a 529 in Maryland in 2023?
The Maryland 529 plan can be contributed to until all account balances in Maryland’s 529 plans for the same beneficiary reach $500,000. At that point, the accounts can grow higher through investment earnings only. More than one person can add to an MD 529 plan, there is no maximum amount per year that can be added. Of course, you will want to look at federal gift tax laws before throwing large sums into a 529 plan.
How much does the Maryland 529 plan cost?
The Maryland 529 plan has program management fees of 0.03% Program Fee (0.15% for the Social Index Equity Portfolio) and 0.05% state fee. In addition, investment selections have fees ranging from .05% to .56% depending on the type of investment you choose.
Does Maryland allow 529 tax deductions?
Yes. If you are a resident of Maryland and contribute to an MD 529 plan, you can deduct up to $2,500 per year for a single filer and $5,000 per year for a joint filer from your Maryland state taxes.
What are the pros of the Maryland 529 plan?
An MD 529 has many benefits.
- Save for college over time rather than one large sum: It allows families to plan ahead and save money over time and invest it to take advantage of market growth. Savings smaller amounts over time are often more manageable than coming up with large sums of money the year the child attends college.
- Federal tax benefits: 529 plans also offer federal tax benefits. The growth of a 529 plan comes out completely tax-free if used for qualifying education expenses.
- State tax deduction: MD residents can take advantage of the MD state tax deduction as they add funds to the 529 plan.
What are the cons of the Maryland 529 plan?
- The money is taxed if the funds aren’t used for qualifying educational expenses: The main con to any 529 plan is that if the funds are used for anything other than qualifying educational expenses, the growth on the account is taxed and comes with a 10% penalty. There are exceptions to this, and as of late 2022, the SECURE Act 2.0 allows a beneficiary to roll up to $35,000 of unused 529 plan funds into a Roth IRA.
- Another con would be if you are not an MD resident, you do not get a state tax deduction by contributing to the MD college savings plan. Overall, it is a great plan with great investment options and low fees.
What are the Maryland 529 withdrawal rules?
To withdraw money from a 529 plan, you simply request a withdrawal of funds from your account. If you have spent that amount or more on qualified expenses in that same tax year, the withdrawal will not be taxed.
Can you use Maryland 529 out of state?
Yes, all 529 Plans can be used for qualifying educational expenses in any state. The beneficiary does not need to attend college, trade school, or primary or secondary school in MD to take advantage of the MD 529 plan.
What happens to a 529 if you move states?
You can keep your 529 plan even if you move states. You can choose to continue adding to the MD 529 plan, though you no longer will get a state tax deduction. You can also leave the current funds in MD 529 plan and open a new 529 account in your new state. Another option is to roll the MD 529 Plan into your new state plan. Ensure you know the fee and investment differences between plans before rolling funds over.
Can I have a 529 in multiple states?
Yes, there is no limit to the number of 529 plans one can hold.
How Maryland 529 plan compares to other 529 plans: tax benefits and investment fees
Overall, for MD residents, the MD 529 plan is a great option. It has state tax benefits (not all states do) and low-cost investment options. For out-of-state residents, there may be better 529 plans out there since you cannot take advantage of MD state tax deductions if you are not an MD resident.
Start saving towards a Maryland 529 college savings plan!
We have covered the Maryland 529 plan in detail so that you can decide if it’s the right college savings plan for you and your family. If you’re interested in a comprehensive financial plan, including 529 plan recommendations, schedule a free discovery call today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.