College is expensive. I graduated with $35,000 in student loan debt. Some graduate with hundreds of thousands of dollars in debt.
I never had access to a 529 plan. I started college in 1998 and they were created in 1996 as Section 529 of the Internal Revenue Code. Even if we knew about it, it didn't make much sense anyway.
Nowadays, a 529 is part of nearly every family's financial plan to provide their children with the opportunity of a college education. My wife and I opened up Maryland 529 accounts for each of our kids and now contribute $5,000 a year ($2,500 each from my wife and myself) so that we can get the tax deduction. While it’s not a huge deduction, it is tax-deferred growth and tax-free earnings when we use it toward Qualified Higher Education Expenses such as tuition, fees, room and board, and books and other supplies. The Plans can also be used at colleges and universities around the country, not just those in Maryland, as well as technical and trade schools and even international universities that have a federal school code.
Maryland 529 Programs
Maryland 529 offers two different plans: the Maryland Prepaid College Trust (MPCT) and the Maryland College Investment Plan (MCIP). The MPCT lets you lock in tomorrow’s tuition at today’s prices and is backed by a Maryland Legislative Guarantee. The MCIP offers a variety of investment portfolios managed by T. Rowe Price – a leading global investment firm since 1937 – and offers flexible contribution options starting with as little as $25 a month.
Of the two available plans, we chose the MCIP, but a nice feature of both Plans is that if you contribute more than $2,500 (which is the maximum deduction each year), the excess amount carries over for deduction purposes. If I were to contribute $10,000 today (just saying), I could claim a $2,500 deduction for the next four years.
The reality is that we're financially very fortunate. Not every family can contribute $500, let alone $5,000 a year towards their kids' education. I get that.
But if you want to help your kids achieve the dream of going to college, you don't have to contribute nearly that much. In fact, the MCIP is so accessible that you can start with just a $250 lump sum contribution or automatic contributions of $25 a month. The key is getting started and not waiting.
Also, the State of Maryland and Maryland 529 recently introduced the Save4College State Contribution Program as another way to help you start saving for college. You could be eligible to receive a $250 contribution from the State if you meet the requirements and follow the easy, online process to get started.
According to Prosperity Now (formerly the Corporation for Enterprise Development), families that save any amount – even less than $500 – are three times more likely to enroll a child in college and four times more likely to see that child graduate than families who haven’t saved anything. You can give you and your child a significant boost by taking advantage of the Save4College State Contribution Program.
What is the Save4College State Contribution Program?
The Save4College State Contribution Program is designed to help low- to middle-income families in Maryland save money for higher education. Simply open a Maryland College Investment Plan account and file an online application with the program before June 1st, 2018 and you could be eligible for a $250 contribution from the State.
You do not need to make an immediate contribution when you open a new account, that requirement is waived when you apply through this program. You open the account, apply for the program, and then once you are approved you must make the minimum contribution – $25, $100 or $250 based on your household income – between July 1 and November 1, 2018.
To be eligible, an applicant must meet the following requirements:
- The beneficiary must still be a Maryland resident and the Account Holder’s Maryland taxable income cannot exceed the maximum household income range ($112,500 as an individual or $175,000 as a couple based on the previous taxable year).
- Current MCIP Account Holders are eligible to apply for the State Contribution if they opened the MCIP account after December 31, 2016, or you can open a new MCIP account and submit your application for the Save4College State Contribution Program prior to June 1, 2018.
Your income will impact your minimum contribution.
- If your taxable income is $49,999 ($74,999 or less for couples) then your minimum contribution is $25.
- If your income is $50,000 – $87,499 ($75,000 – $124,999 for couples), then your minimum contribution is $100.
- If your income is $87,500 – $112,500 ($125,000 – $175,000 for couples), then your minimum contribution is $250.
If you are considering this, act quickly. The deadline is June 1st.
The state contributions are not guaranteed, but they are funded in the order they are received (and assuming State funding in subsequent years, priority is given to applications that did not receive a contribution the previous years). There is $5,000,000 earmarked in fiscal year 2018, $7,000,000 in fiscal year 2019, and $10,000,000 earmarked in fiscal year 2020 and every year thereafter.* If you qualify to receive the $250 State Contribution, then you cannot claim the $2,500 State income deduction on your contribution.
You can reapply for a State Contribution the following year whether you received a contribution or not. The MCIP account must still be active and the Account Holder must submit a new application between January 1 and June 1 of the given year. Priority will be given to Account Holders who did not receive a contribution the previous year.
Already Have a 529 Account? No Problem!
We already have 529 accounts that were opened prior to December 31, 2016 so we can’t take advantage of the Save4College State Contribution Program, but we can still take advantage of the income deduction.
We can also ask for a “match” of our own from family and friends. With GoTuitionSM, a new online gifting portal, loved ones can contribute to a child’s MCIP account and receive a tax deduction if they have Maryland taxable income.
Once you’ve opened an MCIP account, you simply log-in, set-up your profile, and then share the portal link to family and friends. Sharing has never been easier – you can email it, post the link on social media, or even add it to a birthday invitation! And following the birthday, you can automatically track the gifts that you’re receiving so you’ll know who to send thank you cards to.
If you have an MPCT account, friends and relatives can also contribute to your account and are also eligible for the income deduction if they have Maryland taxable income. Simply visit https://maryland529.com/Gift to download a gift slip.
The dream of college is achievable and taking small steps like contributing to a 529 is one of the first steps.
**State Contributions are not guaranteed. The State funding for contributions is limited to (i) $5,000,000 in fiscal year 2018, (ii) $7,000,000 in fiscal year 2019, and (iii) $10,000,000 in fiscal year 2020 and each fiscal year thereafter. As with the entire State budget, the Maryland General Assembly has final approval. If resources are insufficient to fully fund all eligible accounts, Maryland 529 shall provide contributions in the order in which applications are received and give priority to applications of Account Holders who did not receive a State Contribution in any prior year. Please note, an Account Holder is not eligible for the State income deduction on their taxes for any taxable year in which the Account Holder receives a State contribution. You should check with your tax advisor regarding your specific situation.
The Maryland College Investment Plan Disclosure Statement provides investment objectives, risks, fees and expenses, and other information you should read and consider carefully before investing. If you or your beneficiary live outside of Maryland, you should compare Maryland 529 to any college savings program offered by your home state or your beneficiary’s home state, which may offer state tax or other benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan. T. Rowe Price Investment Services, Inc., Distributor/Underwriter.
This post was sponsored by Maryland 529, an independent, non-profit State agency that offers two flexible and affordable 529 plans to help Maryland families save for future college expenses and reduce dependence on student loans, and all the thoughts and opinions shared in this post are my own. Learn more about Maryland 529 and the Save4College State Contribution Program by visiting https://maryland529.com/MDMatch250.