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Deliberately choosing different state's 529 despite in-state tax credit

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  • Deliberately choosing different state's 529 despite in-state tax credit

    I live in Maryland where the 529 investment options seem to have high expense ratios.  Am I crazy to choose a different state's 529 with lower expense ratios (like Fidelity's Arizona 529) due to the probable higher portfolio value in 18-20 years down the road versus the up front tax benefit in Maryland?  The fee structure for Maryland investment options are in the link below for your reference.

  • #2
    Maryland allows a $2500 annual deduction for 529 contributions.

    You could contribute  $2,500 annually to a Maryland plan just to capture the tax deduction.   Meanwhile, contribute more to a lower cost plan.

    When the total ER fees exceed your annual deduction,  transfer the Maryland contributions to your lower cost plan.

    Be sure to calculate your state tax savings in absolute dollars, which is your  marginal state tax rate X $2,500.


    • #3
      Vanguard has a "529 STATE TAX DEDUCTION CALCULATOR" .


      • #4
        I would use your state up to the deduction amount. Then check and see if you have to leave it there. You might not. In some states the deduction is recaptured, but not in others. At any rate, any amount above the deduction amount can go to a good plan.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011


        • #5
          I contribute $2400 (cause i was too lazy to do the monthly math to get $2500 at $200 a month) per child per year for my 2 kids. I live inMaryland and use the maryland plan for the tax break small as it is.

          Maryland currently does not have a clawback, so I am going to transfer to utah every 4 years or so per child. I use the global equity plan, lowest cost for decent diversification 0.52ER. I dislike the fee, andI really hate it has no quicken downloads. But the tax break makes it worth it.