The thought of paying for college can be overwhelming for many people, but a lot of the stress and pressure can be relieved with careful planning.
There are many college savings options and saving in a 529 plan is a great option to consider. 529 plans are tax-advantaged education savings vehicles and are one of the most popular ways to save for education today, due to the federal income tax advantages, as well as potential state income tax advantages. From a federal tax perspective, contributions to a 529 account accumulate tax deferred and earnings are tax-free if the money is used to pay the beneficiary’s qualified education expenses. Many states offer their own tax benefits to state residents; for example, some states exempt qualified withdrawals from income tax (like the federal benefit), or the state may offer an income tax deduction for your contributions. A less common, but potentially more powerful benefit than the state income tax deduction are matching contributions, like the Save4College State Contribution Program offered through the Maryland 529.
The Save4College State Contribution Program is designed to help families save for college by providing a $250 or $500 State contribution to a College Investment Plan Account for eligible individuals. If eligible, you could contribute of as little as $25 to an account, and the State could potentially match up to $500. If you receive a state contribution in a given year, you are not allowed to ‘double dip’ and also claim a state tax deduction, however you can see from this example that receiving a $500 match on a $25 contribution far outweighs the benefit of deducting $25 on your state income tax return.
ELIGIBILITY CRITERIA
Not everyone is eligible for the Save4College State Contribution Program. Eligibility is dependent on a number of factors. Below is the eligibility criteria currently published on the Maryland529 website. Please keep in mind the criteria could change in the future.
General Requirements
- The Maryland College Investment Plan Account for which you apply must have been opened after December 31, 2016
- Only 1 application per Account Holder/Beneficiary relationship can be submitted
- A Beneficiary may only receive 2 State contributions in any year
- All applications must be submitted by 11:59 pm on May 31
Account Holder Requirements
- Be a Maryland resident
- Be at least 18 years old
- Have adjusted gross income that does not exceed $112,500 as an individual or $175,000 as a married couple filing jointly (based on the previous taxable year)
- If filing taxes in Maryland, file taxes by July 15
- The July 15 deadline is regardless of other tax deadline extensions that may be available in Maryland
- This does not revise the normal State deadline of April 15
- Have not received $9,000 in prior State contributions
- Make the minimum contribution to the applied-for Account(s) no later than November 1
The Save4College State Contribution Program is designed to help families save for college by providing a $250 or $500 State contribution to a College Investment Plan Account for eligible individuals. If eligible, you could contribute of as little as $25 to an account, and the State could potentially match up to $500.
Beneficiary Requirements
- Be a Maryland resident
- Be under the age of 26 years in the calendar year before the Account Holder submits an application
- EXAMPLE: For the 2023 application year, the Beneficiary is eligible if they are 25 years old or younger on December 31, 2022
Saving in a 529 account can offer great benefits, and if you are eligible for the Save4College State Contribution Program, you may be able to receive significant contributions to jumpstart your college savings goal. There is risk when investing in a 529 account, so it is important to understand the investment objectives, your specific goals, situation, and risk tolerance before investing and your team at BWFA is here to help.
TYLER KLUGE
CFP®, CPWA®, CDFA®, CEPS
Financial Planner
trkluge@bwfa.com