College Savings Plans of Maryland Provide a Savings Lifeline to Parents

It’s never too early to start saving for your child’s education. That’s the message delivered to a handful of Baltimore County parents who attended a meeting on the College Savings Plans of Maryland at Pine Grove Middle School on Feb. 9

Parents have good reason to worry, said Richard Mazujian, a PR officer with College Savings Plans of Maryland. Financial experts refer to tuition as the new mortgage bubble. A child born this year who grows up to attend a Maryland college at age 18 faces a four-year tuition debt of about $137,243, based on projected averages by the College Savings Plans of Maryland.

“People never think about planning for their child’s education until they are forced to,” explained Mazujian. “With so many other bills and things going on, you put it off.”

Tenacity and forethought will reap you upward of $100,000 in savings. Not only will you have more to spend later in life, but your child won’t be saddled with crushing long-term debt before his financial adult life begins.

The College Savings Plans of Maryland presents two options for parents at any rung in the college-savings ladder. You can switch between plans as your financial situation or needs change.

Neither option is better than the other. It depends on the age of your child, your financial situation and other personal data. Here’s what you need to know about each:

Maryland Prepaid College Trust

The Bottom Line: Lock in on today’s current tuition prices to beat the inflated college tuition of tomorrow. If you have an 8th-grade child, he’s facing almost $51,000 in tuition when he starts school. Choose the Prepaid Trust and lock in at today’s approx. $40,000 tuition cost. Before you’ve done another thing, you’ve saved $11,000. Invest for your newborn, and you’ve shaved off about $100 grand off, explained Mazujian. That doesn’t include the tax benefits.

• Options. Buy a University Plan (four years) or Community College Plan (two  years). So, if you can’t afford to invest for the full four-year program, you still have an option.
• Funding. Pay in a lump sum, annually or over five years in monthly payments.
• Taxes. The parent opens an account. He gets up to a $2,500 deduction on his Maryland taxes. That amount applies to each account, so the other parent may write off up to $2,500, and a grandparent or anyone else who opens an account for the child may do the same. 

This applies to each child as well. So if a family has two children enrolled in the program, the family can set it up so it qualifies for up to $10,000 in Maryland tax deductions.

• Use. The money is associated with tuition and mandatory fees, not other college expenses. If the child receives scholarship money, however, the money may be used for other college expenses such as room and board.

Maryland College Investment Plan

The Bottom Line: You set up an investment portfolio managed by T. Rowe Price that gains tax-free as long as the money is used to pay for approved college costs.

• Options. Choose from multiple investment options, some more conservative than others. You can switch the options once a year for free to reflect your situation. When your child approaches college age, you may choose a more conservative investment strategy.
• Funding. Open an account for as little as $25 a month or $250 for the initial funding.
• Taxes. You can deduct up to $2,500 in contributions per each beneficiary (the main distinction in plans). Parents or grandparents do not open individual accounts with the child as beneficiary hoping to get additional tax benefits. It’s one deduction per child.
• Use. The money can be used for any education-related expense, from tuition to books to room and board.

Follow up: With both plans, it’s your responsibility to keep school/tax records.  “We give you the money, and then it is between you and the IRS,” said Mazujian. From the day you pay the initial enrollment fee ($50 or $75, depending on which method you choose) keep detailed, accurate records, as it will affect your taxes.

Contacts: www.collegsavingsmd.org or 1-888-4MD-GRAD.

Webinars (information seminars held online): Feb. 17, 7-8 p.m.; March 15, 7-8 p.m. and April 1, 12-1 p.m. Register at www.CollegeSavingsMD.org/webinar.