From Our Blog:

Some Maryland 529 Plans Just Got a Lot More Flexible

Along with the passage of the Tax Cuts and Jobs Act legislation, there are new guidelines that affect Maryland 529 plans. If your child has a Maryland 529 plan, you’ll want to read on to learn about some changes that expand the list of qualified educational expenses.

What’s Different As a Result of the New Tax Law?

The new tax law allows Maryland College Investment Plan holders to distribute up to $10,000 per year of tuition only expenses for grades K-12 in public, private, or religious schools. Previously, penalty-free, tax-free withdrawals were limited to expenses incurred in connection with enrollment at undergraduate and graduate school programs.

There is no immediate impact on the Maryland Prepaid College Trust accounts. The Trust currently only offers contracts for tuition and other mandatory fees at two or four year colleges and universities. There are no prepaid contracts offered for schools with grades K-12 at this time.

If your child does not have a 529 plan, or you have one but need a refresher on what it is and how it works, read on.

What is a 529 Plan?

A 529 plan is a tax-advantaged savings plan that allows parents and relatives to save for a child’s education. Each state has its own 529 plan with slightly different characteristics.

Maryland 529 Plans

There are two different plans available through the state of Maryland: the Maryland College Investment Plan and the Maryland Prepaid College Trust. Each has its pros and cons.

The Maryland College Investment Plan is an investment portfolio managed by T. Rowe Price. It’s used to pay for a variety of qualified education expenses like tuition, room and board, books, etc.

Advantages:
  • Available to children and adults of any age
  • Flexible contribution amounts
  • Contributions are invested in either a fixed-portfolio or enrollment based portfolio
  • Investment gains are Maryland tax-free when used toward eligible college expenses
  • Each account holder or contributor may deduct up to $2,500 of contributions each year from Maryland income per beneficiary
Restriction:
  • Withdrawals are only tax-free if the money is spent on qualified expenses such as tuition, fees, textbooks, room and board, etc.
The Maryland Prepaid College Trust is a pooled fund that purchases a contract in which the Trust will pay its benefits in future tuition.

Advantages:
  • Available to children from newborn through 12th grade
  • Multiple payment options
  • Allows the family to begin paying fixed installments as soon as the child is born
  • Locks in the current price of tuition and protects against the rising cost of college
  • Investment gains are Maryland tax-free when used toward eligible college expenses
  • Each account holder or contributor may deduct up to $2,500 of payments each year from Maryland income per account
Restriction:
  • Withdrawals are only tax-free if the money is spent on qualified expenses such as tuition, fees, textbooks, room and board, etc.
Maryland plans can be used out of state and are accepted by almost all accredited institutions. Students with 529 plans are still eligible for financial aid. Additionally, recently opened 529 plans are eligible for a $250 contribution through Maryland’s Save4College program, which is designed to help lower and middle income families save for college.

How Can We Help?

Planning for your children’s education can be overwhelming, but the flexibility of 529 plans allows parents to start saving at their own pace. GGM Wealth Advisors can help you choose the path that will work best with your family’s overall goals. If you are interested in learning more about Maryland 529 plans, or how your plan might be affected by the new tax law, contact us at or give our office a call at 410.685.9685.
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