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The Maryland 529 Plan Deduction for MD Residents

Rules for Claiming a State Income Tax Deduction for Funding a Maryland 529 Plan

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Overview of the Maryland 529 Plan Tax Deduction:

Maryland residents contributing to a Maryland 529 plan receive a state income tax deduction of up to $2,500 per beneficiary for each account holder. If a Maryland resident contributes on behalf of multiple beneficiaries (children), they are entitled to multiple deductions, up to the limit of $2,500 per child. Any amounts contributed over the $2,500 limit per beneficiary may be deducted in any of the following ten tax years, up to that year's annual limit.

Couples filing jointly may each subtract $2,500 per beneficiary ($5,000 total) as long as their $2,500 contributions go into separate accounts owned by each of them individually.

The Maryland 529 plan deduction is an "above the line" income adjustment, meaning residents can claim it even if they do not itemize their other deductions (opting for the standard deduction). There is no income phaseout on this deduction for Maryland residents.

Value of the Maryland 529 Plan Tax Deduction:

Maryland residents trying to decide whether to use a Maryland 529 plan versus another state's 529 plan need to account for the potential tax savings of contributing to their in-state plan.

Considering that the top income tax bracket in Maryland is 6.25%, each $2,500 contribution to a Maryland 529 plan can save a taxpayer up to $156.25 at tax time. Currently, Maryland does not offer a tax deduction for contributing to other types of college savings accounts such as a Coverdell Education Savings Account (ESA) or UTMA Custodial Account.

Claiming the Maryland 529 Plan Tax Deduction:

Residents can claim the Maryland 529 plan tax deduction using code "K" on line 14 of their Maryland Form 502.

Reference and Documentation:

Additional information on the Maryland 529 plan tax deduction can be found on the Maryland Comptroller's website and the official Maryland 529 Plan website.
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