Maryland 529 vs out-of-state 529

[Anonymous]

We recently moved here from NYC. We'd been contributing to our kids' NYC 529s, which was a well-run plan and also the contributions were deductible from our state taxes. Now that we no longer get that deduction, I'm wondering if we should transfer the balance to a Maryland plan (we live in MD), or whether we should keep the NYC 529 and start a new one in MD? Or maybe even open a 529 in a completely different state that has better terms? Does anyone have insights into the pros and cons of these options? Thanks very much!

[Anonymous]

MD is a pretty good plan, but NY is better (lowest fees in country). I would keep the NYplan and not transfer it to MD. I would also Create a MD plan and contribute to get the tax deduction, but contribute anything extra to the NY plan. (You can have 529s in multiple states.)

[Anonymous]

^^This is good advice.

You can also roll over the Maryland plan to NY once a year so that it grows with lower fees.

[Anonymous]

Good advice above - no reason to move from the great investment options with low fees you get in NY now that you've already made the investments. Invest in a MD plan just to the point of annual tax benefit but leave the NY money alone and add to that one if you want to keep investing beyond the MD money.

[Anonymous]

Thanks!

[Anonymous]

Anonymous wrote:^^This is good advice.

You can also roll over the Maryland plan to NY once a year so that it grows with lower fees.

This. We put the minimum in our MD plan to get the deduction and then roll it over to NY.

[Anonymous]

One benefit of a 529 is not having to pay taxes on the capital gains. For federal capital gains, it doesn't matter what state's plan you use. But if you move to NY (or any out of state fund), are you still able to avoid state capital gains taxes? If not -- and I don't know the answer -- it might be worth keeping the money in an MD fund. (I also don't know whether you would be able to leave it NY for most of the time for the lower fees and then move it to MD before you sell it, assuming there is a state capital gain difference.)

[Anonymous]

I also contribute the tax deductible amount in dc but after a few years, transfer to NY. There’s a min number of years you have to maintain it to get the deduction.

[Anonymous]

Some states make you repay deductions if you don't hold it long enough but maryland doesn't (currently).

Federal taxes never apply on earnings and most states (including Maryland and New York) don't tax their own plan or out of state plans. Alabama is the only state I'm aware of that will tax earnings on out of state plans when distributions are made. All of this assumes qualifying deductions.