Quick Lesson Plan for Families with Students  

As summer winds down, many local families are gearing up for students’ return to school.  At this time of year, parents are reminded of the ever-rising costs of education even when they are not sending a child off to college. Hopefully, you have saved for necessary back to school expenses.  Why not get a head start on savings for longer term educational goals.  The Maryland 529 College Savings Plan is a state-sponsored, tax-advantaged savings program designed to help families prepare for future education expenses. It includes two main components:  

1. Maryland College Investment Plan (MCIP)

• Open to residents of any state, managed by T. Rowe Price
• Allows contributions starting at $25, with no enrollment or maintenance fees
• Offers age-based portfolios that automatically adjust risk as the beneficiary nears college age, as well as static investment options for more hands-on investors
• Contributions grow tax-deferred, and withdrawals for qualified education expenses are tax-free at both the federal and state level 
• Maryland residents can deduct up to $2,500 per beneficiary annually from state taxable income (or $5,000 for joint filers) with a 10-year carryforward for excess contributions

2. Maryland Prepaid College Trust (MPCT)

• Closed to new enrollments since June 2023, but existing accounts remain active 2.
• Allowed families to lock in tuition rates at Maryland public colleges, with payouts based on average tuition costs.

The Save4College State Contribution Program offers up to $500 annually as a contribution to the MD 529 accounts of eligible low- to middle-income families.  Several updates to the Maryland 529 College Savings Program take effect in 2025 and 2026.  Starting in 2026, Maryland residents can deduct up to $4,850 per beneficiary from their state taxable income for contributions to a Maryland 529 plan—up from the previous $2,500 limit. This change was enacted through Senate Bill 412, aiming to encourage more substantial savings for college.  Also, the definition of qualified education expenses has broadened to include homeschool curriculum programs, tutoring and test fees, licensing and certification costs and learning-related therapies.  This expansion supports families pursuing non-traditional education paths, making the 529 plan more versatile.The annual gift tax exclusion rose to $19,000 per individual (or $38,000 for married couples) in 20253. This means contributors can give more to a 529 account without triggering gift tax reporting requirements.  

Despite the expanded permissible uses, many potential contributors wonder what happens to the funds if a child is unable to use them.  Under federal changes, unused 529 funds can now be rolled over into a Roth IRA for the beneficiary, subject to certain conditions. This provides a retirement savings option if the funds aren’t needed for education.  In the case of a student becoming disabled, there may also be the option to roll these funds into a MD 529 A.B.L.E. savings account benefitting the student.  

There are several important deadlines associated with the Maryland 529 College Savings Plan, especially if you’re seeking state tax benefits or contributions.  You can contribute to a Maryland 529 plan anytime throughout the year.  However, to qualify for the Maryland state income tax deduction for a given tax year, contributions must be made by December 31 of that year.   Save4College State Contribution Program that offers $250 or $500 in state contributions to eligible Maryland residents has a minimum contribution deadline of November 1 at 11:59 PM ET to qualify for the state match.  Also to receive match, state taxes must be filed by July 15^th even if you receive an extension for longer.  The sooner you get started with this type of long-term saving, the more powerful the effect of compounding interest will have on your balance.