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Financial Planning for College

Financial Planning for College

| April 03, 2023

It does not take a rocket scientist to understand that college tuition is rising. However, our federal, and most state governments, have some tools to help us provide for our children’s educations. One such tool is a College 529 Plan. 

In 1996, Congress enacted Section 529 of the Internal Revenue Code, establishing certain rules for college plans. In 2001, with the passage of the Economic Growth and Tax Relief Reconciliation Act qualified distributions became tax -exempt. This is when these types of plans really started to grow.

To help encourage savings for college most states have enacted their own State College Savings and or Prepayment Plans. Many of these plans offer some state tax deductions for eligible contributions.

Saving for College in Maryland

In Maryland, we have the Maryland College Investment Plan and the Prepaid Trust. Both types of savings for higher education offer state tax deductions up to $2,500 of annual contributions, per beneficiary, per year, per owner. Sound confusing? Just think of it as a husband and wife each can contribute $2,500 to a child’s education within both the College Investment Plan and the Prepaid College Trust.  As such, in my example both the husband and wife have contributed $2,500 each to both types of plans in Maryland for the benefit of their child and would thus qualify for $10,000 of state tax deductions.

This on top of the incentives provided by the federal government are top reasons why, if you are planning for saving for your child’s education, you should be thinking about 529 plans. Please see for more specific information concerning the rules and plans offered in the state of Maryland. 

Financial and Investment Planning in Severna Park, Maryland

Questions about college savings or other investment strategies? Connect with the team at Phronesis Wealth Management today to learn more. Call our office in Severna Park at 410-647-6762 for a complimentary consultation, or book a 15-minute introductory meeting online.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Prior to investing in a 529 Plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing