There are two types of College Savings Plans, also known as 529 Plans, in Maryland.
The Prepaid College Trust and the College Investment Plan are the only plans that provide a Maryland income deduction for Maryland taxpayers. Individuals can deduct up to $2,500 from their Maryland adjusted gross income per account or beneficiary each year, depending on the Plan.
Prepaid College Trust - Contributions in excess of $2,500 within one calendar year to the Maryland Prepaid College Trust may be carried forward and deducted in future years. For example, if an account holder made a $10,000 lump sum contribution in year one, that would equal four consecutive yearly deductions of $2,500 per year.
College Investment Plan - Each account holder can deduct up to $2,500 of contributions each year from Maryland income per beneficiary—$5,000 for two, $7,500 for three, etc. Contributions in excess of $2,500 can be deducted for up to the next 10 years. Contributions in following years could be eligible for deduction; however, you cannot deduct more than $2,500 per beneficiary in any year or extend the 10-year limit on each year’s contribution.
When saving for your child's college expenses the best place to start saving is in the Maryland College Investment Plan. The Plan was one of only four 529 plans in the country to receive a "Gold" rating by Morningstar in 2012. If you do not have a plan setup or need to make a contribution, contact your financial advisor to review your plan and insure you are making the right decisions to benefit your own personal situation.
More information is available by visiting the College Savings Plans of Maryland website.
Tom Taylor, CPA is a fee-only, independent Financial Planner and Certified Public Accountant and can be contacted at Chesapeake Financial Advisors or Taylor & Company in Towson, MD. Tom believes that the greatest benefit of planning includes incorporating tax strategies with financial planning. Tom’s clients receive both services in one advisor. He is a member of NAPFA and the MACPA and AICPA.