Some of you might be aware of the College Savings Plans of Maryland which consist of the Pre-paid College Trust and the College Investment Plan.
The Trust requires a fixed payment per month up to and including the child’s senior year in high school. The later you start the program the higher the fixed monthly payment.
The College Investment plan allows you to contribute into a variety of investment vehicles, and to contribute almost any amount one wants over what ever term one wants. It is a much more flexible plan.
Both offer tax benefits (one can subtract the total amount of your annual contribution to the plans up to $2,500 from your income for Maryland tax purposes), and both accrue interest tax free as long as the funds are used for qualifying educational purposes. There is much more to know about the plans and to start getting that information check out the plan web site at www.collegesavingsmd.org
I have been wondering about a point regarding these plans.
If my children’s grandparents (aunts and uncles for that matter) contribute to the fund set up for my kids they can not subtract that contribution from their income. In order to take advantage of the tax benefits they would have to open up their own account. This seems a little nuts to me. Why have multiple accounts for the same kid? If your are uber wealthy ok I can understand wanting to take multiple $2,500 deductions for your income. If you are me and my family one account does it. Even if I put $10,000 in all at once I can spread that out over 10 years ($1,000 per year for 10 years or $2,000 per year for 5 years, etc).
Would my children’s grandparents contribute more to my children’s education fund if they could deduct the contributions more easily? I don’t know. Actually, I don’t think so. Does it make sense that if they wanted a tax deduction they have to open up their own account with my children as the beneficiary? I don’t think so.
Why have multiple accounts for the same children? I think having as few accounts as possible would save money for everyone. The adminstrators of the plan would have less accounts to manage and support thus reducing their back office support structure, they would also find dispersing funds from fewer accounts would reduce back office expenses. I would have a better handle on the tuition picture for my children and be in a better position to manage the portfolio. Grandparents wouldn’t have another financial portfolio to manage, and if they die before the kids go to college we don’t have to worry about transfering the portfolio. I am sure other benefits exist. Feel free to list them.
Don’t ge me wrong. This is no skin off my back. I am happy to keep things the way that they are. My parents and in-laws will continue to contribute to my kids college education regardless of the tax deduction. I just think they should be able to contribute to the account I set up and take advantage of the tax benefit rather than being forced to open their own account.
Perhaps someone knows of a good reason why this should not change. For example, are the adminstrators compensated by the number of accounts in the plan? I would be interested in hearing your opinion on this. Otherwise I would be interested in legislation that would allow any immediate relative to contribute to a child’s single Maryland College Savings Plan and take advantage of the tax benefit if they want to.