The Maryland Legislature enacted new laws that took effect July 1, 2016 that will make it easier for families to save for college. By taking advantage of the Maryland 529 plan, an individual can contribute to this qualified plan that is established for a beneficiary and deduct a certain amount of the contribution on your Maryland income tax return.
The major reason the new law makes it easier is the change that was made to the old law. The outdated rule allowed you to deduct up to $2,500 per beneficiary per account. Therefore, if a married couple with one child wanted to maximize their Maryland deduction, each parent would have to open up an account for their child and each would have to contribute $2,500. If a married couple has four children, they would collectively have to open up eight accounts. It was a law that required parents to take additional and unnecessary steps to maximize their deduction.
The new law allows you to deduct up to $2,500 per beneficiary per donor. Using the same example, a married couple with one child can open up one account, each contribute $2,500 to the same account and maximize their Maryland deduction at $5,000 per beneficiary. If you contribute more than $5,000 per beneficiary in any given year, the surplus can be carried over and used over the next ten years to soak up the maximum annual deduction amount.
If you have already opened up numerous accounts for the same beneficiary, you can combine them into one account moving forward. This change makes it easier for parents to manage their child’s college savings plan while giving them piece of mind.
The Maryland Legislature also passed a law that allows the State of Maryland to make a matching contribution of $250 per beneficiary to the Maryland College Investment (not Prepaid) Plan. This is allowed for accounts that are set up after December 31, 2016. The new law is designed to help lower to middle income families so it is important to note that there are requirements that must be met before you qualify for the match. To be eligible:
- The beneficiary must be a Maryland resident
- Your Maryland taxable income cannot exceed $112,500 as an individual or $175,000 as a couple
- You must open a Maryland College Investment Plan and submit your application for the “Save4College State Contribution Program” and file an application prior to June 1st of the year you wish to receive the match
One very important note on the match – the account holder cannot take a deduction on any personal contributions to the Investment Plan in any calendar year in which the account receives a match from the State of Maryland.
If you have any questions regarding the Maryland 529 Plans and/or how it may fit into your overall financial plan, please contact Chris Dionot at (301) 543-6017 or firstname.lastname@example.org.