Maryland’s 529 Plan

I’m getting ready to open a new college savings account for our new son, Andrew. This time around, I’ve decided to go with a 529, the Maryland College Savings Plan. For our older son, I have a Coverdell Education Savings Account. I’ve always been partial to the Coverdell accounts, mainly because I like freedom — I can open a Coverdell with my favorite brokerage, and invest in pretty much anything I can invest in via a regular brokerage account. On the other hand, most 529 accounts tend to be more like annuities or 401(k) type plans: you are limited to a fixed set of mutual funds or mutual-fund type investments, depending on the plan. Of course, you’re free to choose any 529 plan out there, but if you want to take advantage of the tax benefits 529s offer, you typically have to pick the plan from your home state.

I like Coverdells because of their flexibility, but they’re not perfect. For one thing, the annual contribution limit is a relatively low $2000. 529s typically have a much higher limit, and with Maryland’s plan in particular, I can deduct contributions up to $2500 from my Maryland state income taxes. It was this little perk that sold me on the plan. The plan does charge a one-time $75 enrollment fee, but with the tax savings, I easily make that up in the first year.

As far as the investment choices go, they’re limited, which is a drawback. But, the plan is administered by T. Rowe Price, a very reputable mutual fund company. I’m even going to break with my control-freak tradition, and try out one of the “life cycle” type funds.