Here are some examples of questions that have recently been posted through this feature along with their responses from the College Savings Plans of Maryland:
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Refunds and Transfers
Question - I plan to take a life-enrichment course from Baltimore Community College as a non-degree seeker. Is the tution an eligible expense for my 529 account?
Response from the College Savings Plans of Maryland - Regarding the Maryland College Investment Plan or the Maryland Prepaid College Trust, it is the taxpayer’s responsibility to verify whether an expense is considered an eligible qualified higher education expense, based on the IRS definition under publication 970:
The Maryland Prepaid College Trust does require the Beneficiary to be attending at least half-time (minimum of six credit hours) for Fall and Spring semesters. For further information please contact Dana Brooks via email@example.com or call at 443-769-1022 .
The Maryland College Investment Plan funds are available for any of its Beneficiaries higher education expenses. For further information please contact at specialist via firstname.lastname@example.org or call at 1-888-463-4723 option #4.
Question - I have two questions. First, can you have a Coverdell Education Savings Account (ESA) and a MD College Investment Plan? The second question is if I have US Savings bonds can I cash them in to invest in the MD College Investment Plan? If so will I have to pay the taxes on them if I'm using them for education?
Response from the College Savings Plans of Maryland - Yes. There is a limit regarding the maximum allowable amount which may be invested per beneficiary in the Maryland College Investment Plan (currently 320,000 per Beneficiary) however we do not take other investments / contributions into consideration.
U.S. Savings Bonds may be transferred over to the Maryland College Investment Plan,assuming they are the appropriate series, and they were purchased for the intention of funding the same Beneficiaries higher education expenses. This link will direct you to more information: http://www.treasurydirect.gov/forms/savpdp0051.pdf
Should the Bonds meet the criteria: The owner would need to cash them in at a bank or financial institution, and request a statement of earnings and principle along with a check for the proceeds. It is very important that this statement be sent along with the check for the proceeds, so the Maryland College Investment Plan can document the source of the earnings, and the owner can show that the applicable earnings were indeed transferred over to a 529 program. This is the only way to prove to the IRS, where the proceeds and earnings went, and avoid paying taxes on those applicable earnings.
Question - It looks like I missed the open enrollment this year for the Maryland Prepaid College Trust. Do I have to wait until December of 2009 to enroll my two children, ages 10 and 13 years old?
Response from the College Savings Plans of Maryland - The next Maryland Prepaid College Trust enrollment period will begin on December 1, 2009. The only enrollments that the Prepaid College Trust will accept from now until the beginning of our next enrollment period are for newborns under one year of age and existing account holders adding additional years or semesters.
Question - Do I have to be related to the child (ex. parent, grandparent) in order to participate in the College Savings Plans of MD? For ex. I am thinking of doing this for my niece's new child and the child of a very close friend.
Response from the College Savings Plans of Maryland - There is no requirement that the Account Holder (owner) be related to the Beneficiary (future student) at all. You may enroll either or both of these two prospective Beneficiaries in the College Savings Plans of Maryland. We have two unique savings plans, the Maryland College Investment Plan and the Maryland Prepaid College Trust. Our website some useful tools to assist you in learning about the plans, and we welcome your calls and emails with any additional questions.
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Question - Based on the Stimulus Package, I read that computers are now a qualified expense for 529 plans. Could you please explain the process for reimbursement of computer expenses. We have 2 accounts & 2 children in college in 2009. What computer expenses are eligible?
Response from the College Savings Plans of Maryland - Under IRS Publication 970 http://www.irs.gov/pub/irs-pdf/p970.pdf to prove that a laptop computer is a Qualified Higher Education expense: The IRS would require supporting documentation from the higher learning institution to prove that the laptop was both a necessary expense, and that it was purchased specific for the Beneficiary in our program. Regarding any new rules, the Economic Recovery Act addresses the issue of a laptop as an eligible expense and will apply to expenses paid or incurred after December 31, 2008. The computer provision will be effective for 2009-2010 only as is the case with most other provisions in the bill.
Question - Is a computer, either laptop or desk top a qualified expense for a 529 plan distribution?
Response from the College Savings Plans of Maryland - Computers are considered an eligible college expense under the College Savings Plans of Maryland only if we receive a request from the university stating that the computer is a necessary item for higher learning. The request to us must be on letterhead from the particular institution.
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Question - I want to allow relatives to send money in to my daughter's Maryland College Investment account. Where should they send the checks, and who should the checks be made out to?
Response from the College Savings Plans of Maryland - Please make your check payable to: Maryland College Investment Plan. Write your account number on the check and mail it to us at:
Maryland College Investment Plan
P.O. Box 17479
Baltimore, MD 21297-1479
From our Disclosure Statement, regarding any applicable Maryland State Income Deductions:
Although individuals other than the Account Holder may make contributions to an Account, only an Account Holder may take the annual deduction. In addition, the deduction may be taken only on amounts contributed by the Account Holder.
Question - My college student son has an account with the College Savings Plans of Maryland from which we have obtained several distributions to pay for college expenses. Can I still make contributions to the plan in order to get the tax deduction while I am requesting distributions for expenses?
Response from the College Savings Plans of Maryland - Yes, you may still make contributions to a College Savings Plans of Maryland account and qualify for the Maryland State income deduction during the same year.
Question - Is there a list of eligible and ineligible state schools and universities for using my College Savings Plans of Maryland benefits?
Response from the College Savings Plans of Maryland - There is not a list of specific institutions that College Savings Plans of Maryland benefits can/can’t be used towards. As long as the child attends a federally accredited university that offers at least an Associates degree and has a federal school code, the College Savings Plans of Maryland can pay out benefits. To find out in a particular institution has a federal school code, please visit the U.S. Department of Education Web site at: http://www.fafsa.ed.gov/FOTWWebApp/FSLookupServlet
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Question - My daughter is enrolled as a freshman at XXXXX, and needs to get a small laptop to take with her to classes. What paperwork, exactly, do I need to submit, to get this expense covered by her plan, to prove that it is for her? Also, since the requirement is posted directly on the university website, does she still need a letter from her advisor on letterhead, indicating the requirement? Please let me know exactly what I need to submit, and how to submit it.
Response from the College Savings Plans of Maryland - According to our records, you have a Maryland Prepaid College Trust account. The benefit repayment is intended solely for tuition and mandatory fees, unless your beneficiary has a scholarship. Any benefit not used or refunded due to scholarship can be used for other qualified higher education expenses. Since we did not pay the full benefit this past semester due to scholarship, there are indeed funds available for additional qualified higher education expenses. Prior to recent legislation, we would require documentation to pay for or reimburse an expense for a laptop; however that is no longer necessary due to a provision in the economic stimulus bill.
We would need a receipt for the laptop, and a signed note from you indicating you wish to be reimbursed for this expense, the account number and your signature. We already have your claim form on file indicating you wish to use some of the remaining benefits this semester. This information may be faxed (410.333-2295) or mailed to the attention of Dana Brooks at MPCT, 217 E. Redwood St. Suite 1350, Baltimore MD, 21202. You may direct any additional benefit-specific inquiries to her directly at email@example.com
Question - My daughter starts school in the fall. How do we begin to pull money out of her 529 College Savings Plans of Maryland account or eligible expenses?
Response from the College Savings Plans of Maryland - If your daughter has a Maryland Prepaid College Trust (MPCT) account, the account holder will receive a Benefits Claim form in the mail in June. This form needs to be signed by the account holder and returned to the MPCT along with a copy of the tuition invoice from the university. The MPCT will then pay the university directly. This step needs to be completed every semester your daughter attends college.
If your daughter has a Maryland College Investment Plan (MCIP) account, the account holder will need to complete the following distribution form (which can be found on our website) and mail it to the MCIP – T. Rowe Price will then issue a check for the amount requested: http://collegesavingsmd.org/uploadedFiles/Current_Customers/MCIPDistribution.pdf.
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Question - If I rollover a Maryland 529 account to another state's 529 program, does the state of Maryland recapture any of the state tax deductions I've received in the past?
Response from the College Savings Plans of Maryland - Currently they do not. There may be a recapture provision in the event of a refund, but not if the funds are rolled over to another states 529 plan.
Question - I currently have $6,800 in another 529 plan through my employer. May I rollover that amount as a 25% downplayment towards the lump sum to open a Maryland Prepaid College Trust account; or will I pay a penalty to American Funds?
Response from the College Savings Plans of Maryland - You may roll your $6,800 account balance from your current 529 provider over to a Maryland Prepaid College Trust account as a down payment. You should not receive any penalties for this (being that you are transferring money from one 529 plan to another 529 plan) but there may be transfers fees, administrative costs, etc. I recommend calling your current 529 provider to determine what fees/penalties/charges (if any) would apply.
Question - My two boys, ages 16 and 9, have existing ESA and UTMA accounts. Can they be rolled over to your 529 plan?
Response from the College Savings Plans of Maryland - Yes, ESA and UTMA accounts can be transferred to a 529 plan, including the two that Maryland offers (the Maryland Prepaid College Trust and the Maryland College Investment Plan). You would first need to open the 529 plan account (which you can do on our website or via a paper application) and you would then submit to us a rollover form along with a copy of a recent statement from the ESA/UTMA account(s). We will initiate the rollover of your current plan into the Maryland plan that you open.
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Refunds or Tranfers
Question - I have accounts set up for my two children under the Maryland College Investment Plan. Is there any way to transfer or rollover the funds in those accounts to the Maryland Prepaid College Plan?
Response from the College Savings Plans of Maryland -
Yes. You would need to establish an enrollment in the Maryland Prepaid College Trust first, before any rollover from another 529 can be processed. For any child over the age of one but still in high school, the next Open Enrollment will begin on December 01, 2009 and end on April 05, 2010. During that period you may enroll online or print out the two page application, and submit it in writing. I would be happy to send you the updated enrollment kits by mail, available appx. end November, I would need your full name and address to add you to the waiting list.
Assuming you have enrolled by April 05, 2010, you will receive a welcome kit and a copy of the contract. You will have a chance to make any changes or corrections in writing prior to being invoiced for the payment option and tuition plan you selected. The invoices are mailed first week in July, and all rollovers and payments are due by mid-August, 2010. However, if you wish to rollover funds earlier then August 2010, and/or wish to make a payment before the end of 2009 for tax purposes, we will legally be able to accept rollover requests and/or payments as soon as the day you submit your enrollment, and apply them to the balance due in August 2010.
If one of the two children is a newborn under the age of one, we can accept last periods application for 2008-2009 prior to their first birthday, please reply or call me for more details if applicable.
Question - I have two children for which I have purchased 4 year University Plans for each. My oldest child used about 2 years worth of her benefits and chooses not to return to college and my younger child will be starting college this fall. Can the remainder of the older child's benefits be appiled to cover expenses (room and board) for the younger child?
Response from the College Savings Plans of Maryland - You have two options as to what you can do with your oldest child’s remaining two years of benefits – you can transfer one year to your younger child (so that child would then have a total of five university years, which is the maximum per beneficiary in the Prepaid College Trust) and then transfer the remaining year to the Maryland College Investment Plan. You can also transfer both years of benefits that your oldest did not use to the Maryland College Investment Plan – funds in a Maryland College Investment Plan account can be used towards any eligible higher education expenses such as room and board, books, fees, etc. In either case, the remaining two years of tuition must be transferred to the Maryland College Investment Plan first in order to pay out towards other college expenses.
Question - What happens to our (Maryland Prepaid College Trust) funds if the student decides not to attend college?
Response from the College Savings Plans of Maryland - If your child decides not to attend college, you have several options: you can change the beneficiary on the account, you can transfer the account to the Maryland College Investment Plan or you could request a refund. The way refunds are calculated is if the account has been active for less than three years, you would receive back your full contribution plus or minus 50% of any earnings, and if the account has been active for more than three years, you would receive back your full contribution plus or minus 90% of any earnings. You would have to reverse the $2,500/year Maryland state income deduction you had previously claimed and you would also receive a 10% federal tax penalty on any earnings. Please keep in mind that the Maryland Prepaid College Trust also allows account holders to delay the use of their benefits for up to 10 years plus any active time served in the military if the student reverses their decision and decides to attend college.
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Question - Are rollovers from out-of-state plans eligible for the MD state tax deduction, if not previously claimed on any other state returns?
Response from the College Savings Plans of Maryland - Yes. Provided that our Account Holder in the College Savings Plans of MD owns the funds, and they aren’t legally gifted or trusted to the Beneficiary under the UTMA / UGMA provisions, he or she would be able to claim the up to $2,500 annual MD State income deduction just as with any new funding.
Question - My understanding is that each 529 account owner may deduct up to $2500 per beneficiary. So, if the mother is a custodian of a 529 account for her child and the father is a custodian of ANOTHER 529 account for the SAME child, and they each contribute $2500 to each of these two accounts, can this MARRIED couple (filing jointly) deduct $5,000 from their MD tax filings for the year?
Response from the College Savings Plans of Maryland - The above scenario is correct in reference to the College Savings Plans of Marland, providing that both the contributions and account are owned by the Account Holders and not the minor/Beneficiary. A Custodian on an account which is funded with proceeds from a UTMA / UGMA would not be eligible to claim any MD State income deductions as the minor legally owns those funds.
Question - Do rollover contributions count towards the $2,500 per account or beneficiary Maryland State income deduction?
Response from the College Savings Plans of Maryland - Yes, rollover contributions do count towards the $2,500/year Maryland state tax deduction. If you have a Maryland Prepaid College Trust account, you can deduct up to $2,500/year per account until you have reached the full amount that you have contributed to the account (including any rollover contributions). If you have a Maryland College Investment Plan, you can deduct up to $2,500/year per beneficiary up to $27,500 or a total of 11 years.
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