I graduated from college with about $35,000 in student loan debt. It was a pretty sizable sum and through saving and building a side hustle, I was able to pay it off in just a few years.
I went to college in 1998 and never had access to a 529 plan. In fact, they were created in 1996 as Section 529 of the Internal Revenue Code. With a need in just two years, even if my parents were to have started contributing in 1996, no one would’ve recommended it.
Since then, to help our kids my wife and I opened up Maryland 529 accounts for each of them 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 towards Qualified Higher Education Expenses. Of Maryland 529’s available plans, the Maryland Prepaid College Trust and the Maryland College Investment Plan (MCIP), we chose the MCIP. Plans can also be used at schools around the country, not just those in Maryland.
One of the MCIP’s nice features is that if you contribute more than $2,500 (which is the maximum deduction each year), the excess carries over. If I were to contribute $10,000 today, I could claim a $2,500 deduction for the next four years.
As part of the MCIP, Maryland 529 recently introduced the Save4College State Contribution Program – which is a $250 state match when you open a Maryland 529 College Investment Account.
What is the Save4College State Contribution Program?
It’s pretty simple – open a Maryland College Investment Plan account this year, file an application with the program before June 1st, and make a contribution to the account between July 1st and November 1st.
You do not need to make an immediate contribution when you open the account. You open it, apply for the program, and then make the contribution afterwards.
These are the eligibility rules:
- The beneficiary must be a Maryland resident.
- No existing account with the same account holder/beneficiary can exist prior to January 1, 2017.
- Your Maryland taxable income cannot exceed $112,500 as an individual ($175,000 as a couple).
- You must open a Maryland College Investment Plan and submit your application for the Save4College State Contribution Program before June 1, 2017.
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 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.*
One last thing, if you get the state contribution then you cannot take the $2,500 State income deduction that is otherwise available. It seems like a fair trade to me!
No Kids? No Problem!
If you’re a Maryland resident and don’t exceed the income requirements, take advantage of this even if you don’t have kids (as long as one day you plan to and want to help with college expenses) because you can change the beneficiary on a Maryland 529 account without penalty.
There are two rules on changing beneficiaries:
- You cannot do it if there is already an existing Account Holder/Beneficiary combination;
- The new Beneficiary must be a Member of the Family of the current Beneficiary.
If you don’t have kids, open an MCIP with yourself as both the Account Holder and Beneficiary, and then apply for the program. At some point in the future, when you have a beneficiary that is a member of your family, you can change it.
Already Have a 529 Account? No Problem!
We already have 529 accounts so we can’t take advantage of this. But that doesn’t mean our kids can’t be the beneficiaries.
As you may have noticed, the rules are that the beneficiary must be a Maryland resident and have no existing account with the same Account Holder/Beneficiary combo.
My parents aren’t Account Holders! And they have zero Maryland income! We never went through the process of having them be Account Holders because they wouldn’t receive tax benefits (they can just contribute to the existing accounts that name us as Account Holders), but now there might be a small enticement outside of the really big one of helping the little guys pay for college when they’re not so little anymore.
$250 a year for your kids’ education? Yes, please.
*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.
Please read the Enrollment Kit at https://maryland529.com which describes the investment objectives, risks, expenses, and other important information that you should consider carefully before you invest. If you or your beneficiary live outside of Maryland, you should consider before investing whether your state or your beneficiary's state offer state tax or other benefits for investing in its 529 plan.
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.