able task force june 29, 2015. overview the college savings plans of maryland is an independent,...
TRANSCRIPT
ABLE Task Force
June 29, 2015
Overview
The College Savings Plans of Maryland is an independent, non-profit Maryland State Agency that offers two Section 529 college savings plans to help families prepare for the future cost of college and reduce future debt.
Both plans can be used at nearly any federally accredited college in the country.
Maryland PrepaidCollege Trust
Allows you to lock-in tomorrow’s college tuition based on today’s
prices and helps to hedge against future tuition increases
Maryland CollegeInvestment Plan
Managed by T. Rowe Price, offers investors a variety of investment
options
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Comparing the Plans
Prepaid College Trust College Investment Plan
Affordability
Choose a variety of payment and tuition options
• Minimum investment:– $250 by check; or– $25 a month
FlexibilityChange tuition/payment option nearly at any time
Choose from a variety of investment options
Eligible Institutions
• 4 yr Colleges/Universities• In-State• Out-of-State
• 2 yr Community Colleges
• 4 yr Colleges/Universities• In-State• Out-of-State
• 2 yr Community Colleges• Trade / Technical Schools
Benefits Paid/Distributions
Semester by Semester Any dollar amount available in your account
Eligible Expenses
• Tuition and Mandatory Fees at a Maryland public college
• Up to the Weighted Average Tuition everywhere else
• Room and Board eligible when the beneficiary receives a scholarship
Any qualified expense defined by IRS Publication 970
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Unique Tax Benefits
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• Deduct up to $2,500 from your Maryland adjusted gross income per account each year.
• Deduct up to $2,500 from your Maryland adjusted gross income per beneficiary each year.
College Investment PlanPrepaid College Trust
Unique Tax Benefits
Participants in the MD529 plans are not limited to contributing $2500 a year
Contributions over $2500 can be carried forwardMaryland Prepaid College Trust - payments in excess of $2,500 per account can be carried forward and deducted in future years until the full amount has been deducted .
Maryland College Investment Plan - Contributions in excess of $2,500 per beneficiary can be carried forward and deducted for up to the next 10 years.
Only the Account Holder is eligible for the Maryland income deduction and only on contributions he or she makes
REFERENCE SOURCE: Maryland Comptroller’s Administrative Release 32
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Qualified Education Expenses
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Eligible Educational Institution This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.
Confirm that institutions are eligible by identifying their Federal School Code at the Department of Educations website.
Maryland College Investment Plan (MCIP)
Qualified Education Expenses
Outlined in IRS Publication 970 as expenses related to enrollment or attendance at an eligible institution.
It is the taxpayer’s responsibility to maintain receipts and determine whether distributions are qualified.
The Account Holder will receive a 1099-Q tax document for any year a distribution is made.
Taxes on Distributions/Refunds
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• Income Tax on the earnings if equivalent amount is withdrawn
• Recapture MD income deduction on the principal
Student Receives
Scholarship, Grant or Tuition
Remission
• Income Tax on the earnings
• 10% Penalty on earnings• No penalty for disability
or death• Recapture MD income
deduction on principal• See MPCT Specific
information below
Student Doesn’t Attend School
MPCT Specific If the child does not receive a scholarship, grant or tuition remission and does not have a
qualified exception (death or disability), the account holder may choose to receive a Reduced Refund as follows:
Your actual payments, less any administrative fees and benefits used, plus or minus: • 50% of the earnings/losses on those payments if enrolled < 3 years• 90% of the earnings/losses on those payments if enrolled ≥ 3 years
§ 529A vs. § 529
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ABLE Act 529 Statute
Beneficiary Limit (1) per beneficiary None
Annual Contribution Limit $14,000 per beneficiary None
Maximum Account Balance
State limit for Section 529 accounts MD $350,000
Income Limitations Social Security Income eligibility limit None
Beneficiary Change Siblings and step-siblings Blood or Marriage
Certification YES. Signed by a doctor NO
Distribution Frequency Frequent Less Frequent
Recapture(Back to the state)
Medicaid recapture requirement NO
Reporting ABLE Reporting requirement MSRB
Reporting of Account YES NO
Monthly Report Monthly electronic report NO
§ 529A vs. § 529 (cont.)
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ABLE Act 529 Statute
Yearly Eligibility YES NO
Home State Requirement YES or contracting state. NO
Expenses Qualified Disability Qualified Tuition
Tax Penalty on Non-Qualified Expenses
10%Exceptions:
Death Contribution growth is returned to the account before the federal tax filing deadline.
10%Exception:
Death Disability preventing beneficiary from attending college
Verification of Qualified Expenses
TBD Taxpayer
Qualified Expenses
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Dictated by IRS Publication 970
Generally:• Tuition• Books and Supplies (as required
by the university)• Room and Board (student must be
enrolled at least half-time)• Expenses of a special-needs
beneficiary necessary for enrollment at an eligible institution
• Education• Housing• Assistive technology and personal
support services• Transportation• Employment training and support• Health • Prevention and wellness• Financial management and
administrative services• Legal fees• Expenses for oversight and
monitoring• Funeral and burial expenses• Other expenses approved by the
Treasury Secretary
529 Plans ABLE Accounts
ABLE ACT(cont.)
Considerations for locating ABLE with CSPM:Board
Currently 10 people/ ABLE would add 10 more
How would the Board address the diverse issues governing both plans?
Staffing and fundingCSPM is funded by the program fees generated from the Plans
Start up costs for ABLE? Who would fund them?Who would take on the administrative costs to add additional staff ?
Contractual ObligationsT. Rowe Price Program manager – would they be willing to amend their contract?
Future RFP in 2016
What role should Community Development Financial Institutions play?
Verification of DisabilityWho will do it? Who will take on the administrative burden?
Medical Information Privacy IssueIncrease administrative costs
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ABLE ACT(cont.)
Other Considerations:ABLE Home state requirement – prevents national program
Difficult to build economies to scale to keep costs down
Questions about contracting state provisions (accounts not universal)
Qualified beneficiary as mandated Account Owner What if representative payee, guardianship, POA, parent (loco parentis)?
Divergence between eligibility and verification of contributionsBurdensome to verify eligibility prior to contributions
Passage of (§ 529A)–shifted to the states for implementation Absent federal guidance or regulations except:
the statute § 529A Treasury Notice 2015-18
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Andrew Friedson
Interim Executive Director
443.769.1024
Lauren Shipley
Director of Marketing
443.769.1035
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