529 question - Maryland. Advice needed!

[Anonymous]

I'm the PP who said the tax law was confusing. This is the part I find confusing:

"In 2002, the Maryland Attorney General issued an opinion to clarify that the subtraction was $2,500
per year per qualified designated beneficiary without regard to the number of accounts set up for
each investment options. Pursuant to this opinion, the Comptroller adopted Regulation .15 under
COMAR 03.04.02."

The above is from the Comproller of Maryland's website
taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it32.pdf

I'm not a lawyer or accountant but to me it sounds like you can only claim $2500 per (child) beneficiary even if you have multiple accounts. So you could set up 2 accounts per parent or a total of 4 to benefit each child but can't deduct more than $2500 per year.

[Anonymous]

That is confusing. But if that's the correct interpretation, then we've been getting away with taking double the deduction for years now. I'd imagine that would be a pretty easy error for them to catch and would have at least triggered an inquiry.

[Anonymous]

From what i understand, it is 2500 per beneficiary per plan. So to get 10k deduction, you will need to contribute:
2500 for DC1 prepaid plan
2500 for DC1 investment plan
2500 for DC2 prepaid plan
2500 for DC2 nvestment plan

[Anonymous]

Anonymous wrote:
I'm the PP who said the tax law was confusing. This is the part I find confusing:

"In 2002, the Maryland Attorney General issued an opinion to clarify that the subtraction was $2,500
per year per qualified designated beneficiary without regard to the number of accounts set up for
each investment options. Pursuant to this opinion, the Comptroller adopted Regulation .15 under
COMAR 03.04.02."

The above is from the Comproller of Maryland's website
taxes.marylandtaxes.com/Resource_Library/Tax_Publications/Administrative_Releases/Income_and_Estate_Tax_Releases/ar_it32.pdf

I'm not a lawyer or accountant but to me it sounds like you can only claim $2500 per (child) beneficiary even if you have multiple accounts. So you could set up 2 accounts per parent or a total of 4 to benefit each child but can't deduct more than $2500 per year.

I just read the PDF link and it clearly states that if you file jointly each parent can take $2500 deduction if they have opened separate accounts. So one kid = 5k in deductions.

[Anonymous]

Anonymous wrote:From what i understand, it is 2500 per beneficiary per plan. So to get 10k deduction, you will need to contribute:
2500 for DC1 prepaid plan
2500 for DC1 investment plan
2500 for DC2 prepaid plan
2500 for DC2 nvestment plan

Forgot to add, that is per person. So if you file jointly, it would be 20k.

[Anonymous]

MD's prepaid plan is better than most states' prepaid plan because whereever you go (in-state or out-of-state) you will get paid the in-state tuition (technically the weighted instate tuition but it works out to pretty much be the UMD-CP tuition).

So you have to ask yourself whether you think in-state tuition will rise at a faster rate than your alternative investment (whatever mix of stocks and bonds), and whether you'd rather have U-MD tuition guaranteed (subject to the legislative guarantee) or the chance for more/less on your own.

I don't think the risk of not getting your prepaid tuition is that significant-- the plan is currently 125% overfunded and the way the legislative guarantee works is the governor has to include the funding in his budget and the legislature would have to affirmatively take it out if there was a shortfall, which to me seems a little unlikely all things considered.

We tend to be conservative financially and have both types of 529. We like knowing that 4 years of in-state tuition and fees are paid for, but we also have some money in a separate 529 to cover additional costs like housing, or private school.

BTW, anyone with 200k in the MD 529 (investment plan) might want to consider moving it to a lower expense plan, like Utah.

[Anonymous]

Anonymous wrote:MD's prepaid plan is better than most states' prepaid plan because whereever you go (in-state or out-of-state) you will get paid the in-state tuition (technically the weighted instate tuition but it works out to pretty much be the UMD-CP tuition).

So you have to ask yourself whether you think in-state tuition will rise at a faster rate than your alternative investment (whatever mix of stocks and bonds), and whether you'd rather have U-MD tuition guaranteed (subject to the legislative guarantee) or the chance for more/less on your own.

I don't think the risk of not getting your prepaid tuition is that significant-- the plan is currently 125% overfunded and the way the legislative guarantee works is the governor has to include the funding in his budget and the legislature would have to affirmatively take it out if there was a shortfall, which to me seems a little unlikely all things considered.

We tend to be conservative financially and have both types of 529. We like knowing that 4 years of in-state tuition and fees are paid for, but we also have some money in a separate 529 to cover additional costs like housing, or private school.

BTW, anyone with 200k in the MD 529 (investment plan) might want to consider moving it to a lower expense plan, like Utah.

I looked at the 529 prepaid plan, and it looks like the growth is much lower. That would be the only drawback, but I guess if you assume that because the tuition would be weighted and not at the then-current tuition amount, growth is not much of an issue (?)

[Anonymous]

Anonymous wrote:

Anonymous wrote:MD's prepaid plan is better than most states' prepaid plan because whereever you go (in-state or out-of-state) you will get paid the in-state tuition (technically the weighted instate tuition but it works out to pretty much be the UMD-CP tuition).

So you have to ask yourself whether you think in-state tuition will rise at a faster rate than your alternative investment (whatever mix of stocks and bonds), and whether you'd rather have U-MD tuition guaranteed (subject to the legislative guarantee) or the chance for more/less on your own.

I don't think the risk of not getting your prepaid tuition is that significant-- the plan is currently 125% overfunded and the way the legislative guarantee works is the governor has to include the funding in his budget and the legislature would have to affirmatively take it out if there was a shortfall, which to me seems a little unlikely all things considered.

We tend to be conservative financially and have both types of 529. We like knowing that 4 years of in-state tuition and fees are paid for, but we also have some money in a separate 529 to cover additional costs like housing, or private school.

BTW, anyone with 200k in the MD 529 (investment plan) might want to consider moving it to a lower expense plan, like Utah.

I looked at the 529 prepaid plan, and it looks like the growth is much lower. That would be the only drawback, but I guess if you assume that because the tuition would be weighted and not at the then-current tuition amount, growth is not much of an issue (?)

When they calculate your required contribution to the prepaid plan, they build in assumptions about future investment returns and future growth of tuition, i.e. what tuition will be when your kid is in college. The combination of your contributions and their assumptions about returns is calculated to reach that assumed future tuition. Often, prepaid plans adopt conservative assumptions, including assuming low rates of return between now and when your kid enters college. This means that the prepaid plan itself faces less of a risk that what they asked you to contribute will fall short of that future tuition, which they are going to be on the hook for. On the other hand, that conservative rate of return assumption may be lower than what you could earn in the market-based investment plan, but in that case you will be bearing the risk for lower or higher returns.

[Anonymous]

Anonymous wrote:

Anonymous wrote:MD's prepaid plan is better than most states' prepaid plan because whereever you go (in-state or out-of-state) you will get paid the in-state tuition (technically the weighted instate tuition but it works out to pretty much be the UMD-CP tuition).

So you have to ask yourself whether you think in-state tuition will rise at a faster rate than your alternative investment (whatever mix of stocks and bonds), and whether you'd rather have U-MD tuition guaranteed (subject to the legislative guarantee) or the chance for more/less on your own.

I don't think the risk of not getting your prepaid tuition is that significant-- the plan is currently 125% overfunded and the way the legislative guarantee works is the governor has to include the funding in his budget and the legislature would have to affirmatively take it out if there was a shortfall, which to me seems a little unlikely all things considered.

We tend to be conservative financially and have both types of 529. We like knowing that 4 years of in-state tuition and fees are paid for, but we also have some money in a separate 529 to cover additional costs like housing, or private school.

BTW, anyone with 200k in the MD 529 (investment plan) might want to consider moving it to a lower expense plan, like Utah.

I looked at the 529 prepaid plan, and it looks like the growth is much lower. That would be the only drawback, but I guess if you assume that because the tuition would be weighted and not at the then-current tuition amount, growth is not much of an issue (?)

I'm not really sure what you are asking. IIRC MD had a number of years where tuition was increasing sharply and then for a few years they kept tuition flat (although they increased some fees). So, in that sense your investment would not have increased much in those years I also think it's fair to say that compared to a stock market that went up 25% last year, the prepaid plan is never going to look good. However, when the market crashed in 2008, we didn't have to worry about losing money either. You have to judge for yourself what risks you'd like to take on, vs shift to someone else.