The cost of education is continuously rising and thus saving for college has become even more important. A common way to save and invest for college is through a 529 plan, which, due to its tax advantages, is also one of the best ways to save for a child’s education expenses. With a 529 savings plan, a family may begin contributing to a child’s college fund as soon as the baby is born. Although there can only be one beneficiary per account, a beneficiary can have more than one account. There is a maximum account balance of $500,000.00 per beneficiary.
The advantage of a 529 plan is that the funds grow tax-deferred. When the funds are withdrawn to pay for the beneficiary’s “qualified education expenses,” such withdrawals are exempt from federal income tax. Maryland 529 college savings plans also offer a Maryland state income deduction on contributions of up to $2,500 each year per plan.
If you are interested in learning more about 529 plans and whether such a plan is right for your family, our upcoming articles will provide information on the two types of Maryland 529 plans and will explain how the SECURE Act, signed into law on December 20, 2019, impacts such plans.