Maryland 529 Plans – Saving for College Now Easier and with More Benefits

by Lorraine Sexton, CPA

As a result of Maryland legislation enacted during 2016, saving for college has now become easier for families who take advantage of the Maryland 529 plans.

Parents, grandparents, other family members and really anyone who would like to contribute money to a qualified Maryland College Investment Plan set-up for a beneficiary are eligible to contribute to the plan and claim the subtraction modification only on your Maryland income tax return. The change took effect July 1, 2016 and applies to tax year 2016 and beyond.

Under the new law, up to $2,500 per contributor per beneficiary is allowed to be claimed as a subtraction modification on your Maryland income tax return, with the excess amount contributed carried over to the next ten succeeding taxable years until used as a subtraction.

Previously, the contribution amount allowed as a subtraction modification was up to $2,500 per account holder per beneficiary. Therefore, under prior law, in order for each spouse to claim a $2,500 subtraction modification for contribution to a Maryland College Investment Plan on behalf of their child, they had to each set-up separate accounts for their child. (i.e. If they had three children, they would have to set-up six accounts). Now, only one account is needed per child and anyone can contribute to the child’s Maryland College Investment Plan account and claim a subtraction modification.

The change in the law also eases the administrative burden at the state level from having so many separate accounts set-up for beneficiaries. Existing accounts can be combined, and going forward, only one account will need to be set-up per beneficiary.

Another legislative change relating to 529 plans was in the Maryland College Affordability Act of 2016. The Act allows for a matching Maryland state contribution of $250 per beneficiary to Maryland College Investment Plan accounts of eligible applicants that are set-up after December 31, 2016. In order to be eligible for the state matching contribution amount, the following requirements must be met:

  1. The qualified beneficiary of the investment account must be a Maryland resident,
  2. The account holder must submit an application for the Save4College State Contribution Program between January 1 and June 1 each year; and
  3. The account holder must have Maryland taxable income less than or equal to $112,500 for an individual or $175,000 for a married couple filing a joint return in the previous taxable year.

The investment account holder is not eligible for a subtraction modification for contributions to a Maryland College Investment Plan account in any tax year in which the account holder receives a state matching contribution.

If you have any questions relating to the new Maryland 529 plan tax benefits and planning opportunities, please contact us.