How Do I Report My 529 Plan for Maryland?

If you contributed to a Maryland 529 plan during the year, you may qualify for a Maryland subtraction from income. On the other hand, if you withdrew money from a Maryland 529 plan and did not use it for qualified education expenses, you may need to add some or all of that amount back to your Maryland income. Maryland provides separate subtraction codes for contributions to its prepaid tuition and college investment plans.

What Is a Maryland 529 Plan?

A 529 plan is a tax-advantaged education savings program designed to help families save for future education costs.

Maryland offers two types of 529 plans:

• Maryland Prepaid College Trust
• Maryland College Investment Plan

These are the only Maryland-sponsored 529 plans that qualify for Maryland's state income tax subtraction. Contributions may qualify for a deduction on your Maryland return, subject to annual limits. Maryland identifies these subtractions using codes XA and XB. 

What Expenses Are Considered Qualified?

Qualified higher education expenses generally include costs required for enrollment or attendance at an eligible postsecondary institution, such as a college, university, or technical school.

Examples include:

• Tuition
• Mandatory fees
• Textbooks
• Required supplies
• Computer equipment
• Room and board
• Certain expenses for students with special needs

Qualified expenses may also include up to $10,000 per beneficiary per year for tuition at eligible elementary or secondary schools. These rules are generally based on the Internal Revenue Code and IRS guidance. 

How Much Can I Deduct?

Maryland allows a subtraction of up to:

• $2,500 per beneficiary, per year

for contributions made to an eligible Maryland 529 plan. If contributions exceed the annual limit, certain unused amounts may be carried forward to future years under Maryland's rules. Maryland's subtraction codes include:

• XA – Maryland Prepaid College Trust
• XB – Maryland College Investment Plan

The Resident Instructions identify these as allowable subtractions from income. 

What If I Rolled Over Funds From Another State's 529 Plan?

Maryland generally accepts rollovers from another qualified tuition program that meets the IRS definition of a Qualified Tuition Program.

Before initiating a rollover, taxpayers should verify:

• The current plan permits rollovers.
• The receiving Maryland plan accepts the transfer.
• Federal rollover limitations are satisfied.

Federal law generally limits certain rollovers to one per beneficiary within a 12-month period. 

What If I Use the Money for Non-Educational Purposes?

If a distribution is not used for qualified education expenses:

• The earnings portion may become taxable.
• Federal penalties may apply.
• Maryland may require an addition to income for amounts previously deducted.

Maryland specifically requires taxpayers to add back certain refunds or distributions from the Maryland Prepaid College Trust or Maryland College Investment Plan if the funds were not used for qualified higher education expenses. 

How Do I Enter a Maryland 529 Plan in the Software?

To report the deduction:

1. Select State from the navigation menu.
2. Edit the Maryland return.
3. Select Subtractions from Income.
4. Choose Other Subtractions from Income.
5. Select:
   • XA for the Maryland Prepaid College Trust, or
   • XB for the Maryland College Investment Plan.
6. Enter the allowable contribution amount and continue.

Maryland's subtraction instructions list both XA and XB as eligible college savings plan subtractions.

Key Takeaway

• Contributions to a Maryland 529 plan may qualify for a Maryland income subtraction.
• The annual subtraction is generally limited to $2,500 per beneficiary.
• Qualified education expenses include tuition, fees, books, supplies, room and board, and certain K-12 tuition expenses.
• Nonqualified withdrawals may trigger taxes, penalties, and Maryland income add-backs.
• Enter the deduction under Maryland → Subtractions from Income → Other Subtractions from Income using code XA or XB.