College savings roll in to new plan

Parents and others put in $100 million in the first month

January 10, 2002|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

In its first month, Maryland's new tax-sheltered college savings plan collected $100 million in more than 27,000 accounts opened by parents and others wanting to invest for students' future higher education expenses.

"It's very exciting to see how much we have come in a month but also very exciting to see the potential out there," said Joan E. Marshall, executive director of the College Savings Plans of Maryland. "We still run into people who haven't heard of this plan."

The Maryland College Investment Plan began accepting contributions Dec. 10 after more than a year and a half of planning. Investors can put money into as many 10 portfolios managed by Baltimore's T. Rowe Price Associates.

With the launch of the plan, Maryland became the 40th state to offer a college savings plan. The plans have gained more attention nationwide because of attractive new tax benefits.

Thanks to the federal tax law passed last year, investment gains in the plan now can be withdrawn free of federal income taxes if used for qualified college expenses. Maryland doesn't tax the earnings, either.

Maryland also offers a tax deduction for residents contributing to the plan. But just how generous that tax break should be is expected to be clarified by the General Assembly this year.

In the early marketing of the plan, residents were told they could deduct up to $2,500 in contributions per account each year on their state income tax return, theoretically making it possible for a parent to open 10 accounts for one child and claim as much as $25,000 in state income tax deductions.

The possibility that legislators might limit future deductions prompted some investors to sign up before the first of the year, officials said. Legislators could also limit deductions for contributions made in 2001, though state Comptroller William Donald Schaefer has recommended against that to avoid "chaos."

Investment options include seven portfolios whose mix of assets is based on when the student is expected to go to college.

Accounts can be opened with a minimum of $250, or $25 a month under an automatic investment program. No more contributions can be made once a student's investment accounts total $175,000.

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