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Maryland sponsors a direct-sold 529 college savings plan and a prepaid tuition program. Both plans allow Maryland families to make tax-deductible contributions to their children's future education. The direct Maryland 529 plan allows you to save for your child’s education by investing in professionally-managed, low-fee investment portfolios, and its $500,000 maximum account size is fairly high in comparison to those of other states. The Maryland Prepaid College Trust lets you lock in today’s tuition prices at Maryland colleges so your child can redeem the benefits in the future even if tuition prices skyrocket by then. Although Maryland does not have an advisor-sold 529 plan, you can still use SmartAsset's advisor matching tool to find financial advisors in your area that can help you plan for your child's college expenses.
The Maryland College Investment Plan allows you to start saving for your child’s education as soon as possible with as little as $25. The plan offers several investment portfolios that T. Rowe Price manages. Your options include age-based portfolios that may suit those new to investing. These automatically rebalance their asset allocation to take on less risk when your child gets closer to college. The account is open to all U.S. citizens, but Maryland taxpayers can deduct up to $2,500 from their state taxable income each year for every account they open.
You can enroll in the Maryland College Investment Plan online or by filling out a paper form and mailing it in. The process should take a few minutes as long as you’ve gathered the following details about yourself and your beneficiary:
In addition, you need to select an investment option at the time of enrollment.
Each investment portfolio in the Maryland College Investment Plan charges a total annual asset-based fee that currently ranges from 0.16% to 0.68%, making Maryland’s plan one of the country's most affordable direct-sold 529 plans to invest in. The total fee combines the state administration fee along with the estimated operating expenses of the mutual funds that make up each portfolio. This total fee isn’t charged out of your pocket but factored out of total assets in the portfolio, and your account bears its pro-rata share.
If you invest $10,000 in a portfolio with a total annual asset-based fee on the high end of 0.68%, your fees would amount to just $68 over a year. This equation assumes a 5% annually compounded rate of return and a static fee throughout that time span.
Even though any U.S. citizen or resident alien can open a Maryland College Investment Plan, state tax payers get additional benefits for opening an account. They can deduct up to $2,500 in contributions from their state taxable income per account each year.
But the contributions of any account holder can grow tax-exempt as long as it’s invested in the plan. This means your money can make the most out of compound interest. In addition, your withdrawals won’t be taxed as long as you use them for qualified higher education expenses such as tuition and books needed for enrollment.
However, you may run into some trouble if you use your 529 plan money on anything else. Nonqualified withdrawals may be subject to federal income tax and a 10% penalty. You should speak to a qualified tax advisor in your area about how any nonqualified withdrawal may affect you based on your unique tax situation.
With the Maryland College Investment Plan, you can invest in enrollment-based portfolios or fixed portfolios.
Over time, enrollment-based portfolios automatically change their asset allocation or the mix of stock and bond funds they invest in. When your child is young, the portfolio invests more of your money in stock funds. Stocks are generally considered more volatile than bonds, but they also may have potential for stronger growth. The portfolio will switch to an emphasis on safer bond funds when your child gets closer to the college years. The idea here is to protect your earnings and still get a steady return right before you’re ready to use the plan money.
On the other hand, the asset allocation for fixed portfolios stays constant throughout the life of the investment. Fixed portfolios invest in a variety of stock, bond and money market funds. You can choose one or more of these portfolios to create a personalized investment strategy based on your risk level and goals.
A financial advisor in your area can help you create a personalized investment strategy with the portfolio options offered through the Maryland College Investment Plan. Furthermore, SmartAsset's asset allocation calculator can illustrate how portfolios are broken down based on different risk levels.
You can request a withdrawal by logging on to your online account or by filling out a Distribution Form. Payments can be made electronically, by check or via a wire transfer. You can direct payments to yourself, your beneficiary or an eligible educational institution.
