Kim Finkle, MBA, Staff Financial Advisor Having a conflict with your co-parent or partner? - Start Neutral Mediation

What is the Maryland College Investment Plan (MCIP)?

The MCIP is a tax-advantaged college savings plan sponsored by the state of Maryland. Like most 529 plans, contributions grow tax-free, and qualified withdrawals used for educational expenses are not taxed by the state. Here's why the MCIP is a great option for co-parents:

• No Residency Requirement to Contribute: Both parents can contribute to the MCIP regardless of where they live in the U.S. This flexibility ensures both parties can participate in their child's educational savings plan.
• Nationwide College Choice: Funds can be used at any accredited educational institution, in-state or out-of-state, giving your child maximum flexibility when choosing a college.
• Multiple Contribution Options: Each parent can contribute according to their financial situation, as agreed upon in court orders or separate agreements. This allows for a fair and balanced approach to saving for your child's college education.

 

Managing an MCIP as Co-parents

There are two main ways divorced or separated parents can manage an MCIP for their child:

• Separate Accounts: Each parent can open their own MCIP account naming the child as the beneficiary. This allows for independent control over contributions and withdrawals.
• Joint Ownership Not Available: Unlike some states, Maryland doesn't allow joint ownership of 529 plans. However, one parent can be the account owner while the other contributes. Open communication and clear agreements are essential for this approach.

 

Important Considerations for Co-parents

• Open Communication is Key: Discuss contribution amounts, investment strategies, and beneficiary designations openly with your co-parent to avoid future disputes.
• Legal Agreements: Consider including specific details about the MCIP in your divorce decree or a separate agreement for clarity on how the account will be managed and funded.
• Tax Implications: Be aware of tax implications for contributions and withdrawals, especially if one parent contributes more than the other. Consulting a financial advisor can be helpful in navigating the tax complexities.

 

MCIP vs. Other States' 529 Plans

While the MCIP offers significant benefits, comparing it with plans from other states, especially if your child might attend college out-of-state, is prudent. Here's a quick comparison of Maryland with 5 other popular 529 plans, including neighboring states:

State	Investment Options	State Tax Benefit	Additional Benefits
Maryland	Variety of Options	Up to $529 tax credit	None
Delaware (Neighboring State)	Vanguard Target-Date Funds	No state tax benefit	None
Pennsylvania (Neighboring State)	Multiple Portfolio Options	Up to $4,000 tax credit	Can be used for K-12 tuition up to $10,000/year
California	Multiple Portfolio Options	Up to $2,500 tax credit	Can be used for private K-12 tuition
Texas	T-Rowe Price & BlackRock Options	No state tax benefit	Can be used for private K-12 tuition up to $10,000/year
Wyoming	Various Investment Options	None	None

 

Alternatives to 529 Plans

While 529 plans offer tax advantages, they may not be the only option for divorced or separated parents saving for their child's education. Here are a few alternatives to consider:

• Custodial Savings Accounts (UTMA/UGMA): These accounts allow you to invest on a minor's behalf, but funds can be used for any purpose, not just education. Earnings may be taxed.
• Savings Accounts: A regular savings account won't offer tax benefits, but it can be a good option for short-term savings goals.

 

Conclusion

The Maryland College Investment Plan empowers divorced or separated parents to build a secure future for their child's education. By understanding the plan's features, comparing it with other options, and considering alternative savings vehicles, you can ensure your child has the financial means to pursue their educational dreams.

Remember, consulting with a financial advisor can help you develop a personalized college savings plan tailored to your specific needs and goals.

 

 

529 Plans By State

1. Alaska 529 Plan

2. Alabama 529 Plan

3. Arizona 529 Plan

4. Arkansas 529 Plan

5. California 529 Plan

6. Colorado 529 Plan

7. Connecticut 529 Plan

8. Delaware 529 Plan

9. Florida 529 Plan

10. Georgia 529 Plan

11. Hawaii 529 Plan

12. Idaho 529 Plan

13. Illinois 529 Plan

14. Indiana 529 Plan

15. Iowa 529 Plan

16. Kansas 529 Plan

17. Kentucky 529 Plan

18. Louisiana 529 Plan

19. Maine 529 Plan

20. Maryland 529 Plan

21. Massachusetts 529 Plan

22. Michigan 529 Plan

23. Minnesota 529 Plan

24. Mississippi 529 Plan

25. Missouri 529 Plan

26. Montana 529 Plan

27. Nebraska 529 Plan

28. Nevada 529 Plan

29. New Hampshire 529 Plan

30. New Jersey 529 Plan

31. New Mexico 529 Plan

32. New York 529 Plan

33. North Carolina 529 Plan

34. North Dakota 529 Plan

35. Ohio 529 Plan

36. Oklahoma 529 Plan

37. Oregon 529 Plan

38. Pennsylvania 529 Plan

39. Rhode Island 529 Plan

40. South Carolina 529 Plan

41. South Dakota 529 Plan

42. Tennessee 529 Plan

43. Texas 529 Plan

44. Utah 529 Plan

45. Vermont 529 Plan

46. Virginia 529 Plan

47. Washington 529 Plan

48. West Virginia 529 Plan

49. Wisconsin 529 Plan

50. Wyoming 529 Plan

51. DC 529 Plan

Warning:  This post is neither financial, health, legal, or personal advice nor a substitute for the advice offered by a professional. These are serious matters, and the help of a professional is recommended as it can impact your future.