How to Report 529 Contributions on Your Maryland Tax Return?

Maryland residents who contribute to a 529 college savings plan can benefit from a state income tax deduction. Reporting these contributions correctly on your Maryland tax return is essential to maximize your tax savings. Here’s a step-by-step guide to help you navigate the process.

Step 1: Know the Deduction Limits

Maryland allows a state income tax deduction for contributions to its 529 plans:

• $2,500 per beneficiary, per year for individual filers
• $5,000 per beneficiary, per year for married couples filing jointly

Contributions above these limits can still be made, but the extra amount will not provide an immediate state tax deduction. However, unused contributions can often be carried forward to future tax years.

Step 2: Gather Your Contribution Records

Before filing, gather documentation showing your 529 contributions for the tax year. Most 529 plan administrators, including the Maryland College Investment Plan and the Maryland Prepaid College Trust, provide annual statements summarizing your contributions. These records will help you accurately report your contributions and claim the deduction.

Step 3: Complete the Maryland Tax Forms

To report your 529 contributions on your Maryland state tax return:

1. Start with Form 502 – This is the standard Maryland individual income tax return form.
2. Locate the 529 Deduction Section – On Form 502, you’ll find a specific line for contributions to Maryland 529 plans. This is typically labeled as a “subtraction” from your income.
3. Enter Your Contribution Amount – Input the total contributions made during the tax year for each beneficiary, up to the allowable limit. If you are married filing jointly, make sure to apply the higher deduction limit.

Step 4: Claim the Deduction

After entering your contributions, the subtraction will reduce your Maryland taxable income, which can lower your state income tax liability for the year. Ensure that the total deduction does not exceed the annual limits per beneficiary.

Step 5: Keep Records

Even after filing, it’s important to keep copies of your contribution statements and tax forms. These may be needed in case of an audit or if you need to carry forward unused deductions in future years.

Additional Tips

• Contributions must be made by December 31 to qualify for that tax year’s deduction.
• If you have multiple 529 accounts or beneficiaries, track each account separately to ensure deductions are applied correctly.
• Maryland allows changing the beneficiary of a 529 account without losing the deduction, providing flexibility if your child’s plans change.

Conclusion

Reporting 529 contributions on your Maryland tax return is straightforward when you follow these steps. By accurately claiming the deduction, you can reduce your taxable income and maximize the benefits of your Maryland 529 plan while saving for your child’s education.

If you want to be sure you’re reporting your 529 contributions correctly and getting the full Maryland deduction you’re entitled to — contact Watter CPA. Reach out to our dedicated team for step-by-step support with your state return and education tax planning.

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