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, though it’s $350,000 maximum contribution limit is middle-of-the-road compared 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. Though Maryland does not have an advisor-sold 529 plan, you can still use the SmartAdvisor matching tool to get paired with an expert who can help you create the best college savings plan that aligns with your goals.
|Plan Name||Program Type||How to Enroll||Fees|
|Maryland College Investment Plan Read Review||College Savings Plan||Direct-Sold||0.26% - 0.74%|
|Maryland 529 Prepaid College Trust Read Review||Prepaid Tuition Plan||Direct-Sold||Varies|
Maryland College Investment Plan
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.
How Do I Enroll in the Maryland College Investment Plan?
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:
- Social Security and tax identification numbers
In addition, you need to select an investment option at the time of enrollment.
How Much Does the Maryland College Investment Plan?
Each investment portfolio in the Maryland College Investment Plan charges a total annual asset-based fee that currently ranges from 0.26% to 0.74%, 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 0.74%, your fees would amount to just $74 in a year. This equation assumes a 5% annually compounded rate of return and a static fee throughout that time span.
Tax Benefits of the Maryland College Investment Plan
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.
What Are My Investment Options?
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.
You can use our asset allocation calculator to see how portfolios can be broken down based on different risk levels. A financial advisor can also help you create a personalized investment strategy with the portfolio options offered through the Maryland College Investment Plan.
How Do I Withdraw Money from the Maryland College Investment Plan?
You can request a withdrawal by logging on to your account or by filling out a Distribution Form. Payments can be made electronically, by check or via wire transfer. You can direct payments to yourself, your beneficiary or an eligible educational institution.
Maryland 529 Prepaid College Trust
This prepaid tuition program allows you to lock in tuition prices at their current rates, so your child can redeem benefits in the future regardless of rising tuition costs. This option offers the flexibility of choosing your tuition plan and payment option. You can choose a plan that covers anywhere from one year at a Maryland college to four years. And you have several ways to pay it off, including through monthly payments and in lump sums.
How Do I Enroll in the Maryland 529 Prepaid College Trust?
You can open an account online. Be sure to gather the following information about yourself and your beneficiary:
- Social Security and tax identification numbers
How Does the Maryland 529 Prepaid College Trust Work?
The Maryland 529 Prepaid College Trust allows you to pay for tuition and mandatory fees at in-state or in-county colleges at today’s rates, so your child can redeem his or her benefits in the future even if tuition prices spike dramatically by then.
You can do this by choosing from a variety of plan options (contracts), which span from one semester to four years at a Maryland public community college or university. The plan also offers several payment options. And the benefits in your contract are guaranteed by state law.
So if you’ve paid off a four-year university plan in full by the time your child enrolls in a Maryland college, the program will pay off tuition and mandatory fees based on your plan choice regardless of how much prices have inflated by then.
How does the Maryland Prepaid College Trust cover this? The trust board pools the money that all account owners contribute and then invests it with the guidance of asset-management professionals in order to cover future benefits.
You have several plan types to choose from. Below are your options.
- University Plan (one semester to four years)
- Community College Plan (one to two years)
- Two Plus Two Plan (two years at a community college and two years at a four-year college)
But your child’s benefits aren’t limited to schools in Maryland. The Prepaid College Trust will pay tuition and mandatory fees at a private or out-of-state college up until either the weighted average tuition or your minimum benefit, whichever is greater. However, you would be responsible for any difference.
How Much Does the Maryland 529 Prepaid College Trust Cost?
The Maryland Prepaid College Trust charges a $50 enrollment fee if it’s completed online or a $75 enrollment fee if you mail in a paper application. The enrollment fee would be reduced to $20 if you open an account for a beneficiary that’s already enrolled in the direct savings plan option.
Plan prices or contract rates are based on an actuarial formula, which considers several factors such as the weighted average tuition of Maryland public colleges, tuition inflation estimates and investment projections. Because these variables change, the plan prices change each enrollment period as well. For example, the weighted average tuition for the 2017-2018 enrollment period was $10,033 for four-year public colleges.
This is one of the many reasons why it’s best to open these types of accounts when your child is young, especially because tuition hikes are expected to continue well into the next decade.
What Are My Payment Options?
The Maryland 529 Prepaid Tuition Trust offers several ways you can pay off the plan type of your choice. Below are your options.
- Lump Sum
- Fixed Annual Payments
- 5-Year Monthly Payment: 60 equal monthly payments
- Extended Monthly Payment: Equal monthly payments for a specified number of months
- Down Payment: 25%, 40%, or 55% of the lump sum price with the remaining amount to be paid monthly or annually
Tax Benefits of the Maryland 529 Prepaid College Trust
As a 529 college savings plan, the Maryland 529 Prepaid Tuition Trust enjoys the same benefits as its direct-sold option. This means your benefits can be used tax-free on qualified higher education expenses.
How Do I Withdraw Money from the Maryland 529 Prepaid College Trust?
But you're not limited to investing in one plan. You can find a financial advisor to help you create a personalized investment strategy utilizing one or more of these options. If you're not sure how to find professional help, you can use our SmartAdvisor tool. After answering a few simple questions, it links you to local financial advisors based on your preferences. You can review their qualifications and credentials before setting up interviews to narrow down your search.