The backpacks are packed, the school supplies have been purchased, and families are settling into another school year. While parents may be thinking about homework and after-school activities, there is another education-related item worth putting on the planning list: saving for future education expenses.
A 529 plan can be a valuable way to save for a child or grandchild’s education while providing tax advantages along the way. And for families living in the Tri-State area, there is an important detail to understand: Maryland, Pennsylvania and West Virginia do not all treat 529 contributions the same way.
The Tax Benefits of a 529
A 529 plan is designed to help families save for education. Money contributed to the account can grow tax-deferred, and when withdrawals are used for qualified education expenses, the earnings generally come out federally tax-free. Contributions themselves are not deductible on your federal income tax return.
Where the state tax benefit comes into play is on your state income tax return. Some states allow residents to deduct or subtract qualifying 529 contributions from state taxable income.
That is where the differences among Maryland, Pennsylvania and West Virginia become particularly important.
Maryland: Know the $2,500 Limit
For Maryland taxpayers, the rules are relatively restrictive.
Maryland currently allows a taxpayer to subtract up to $2,500 per beneficiary each year for contributions to a Maryland College Investment Plan account. Contributions above that amount aren’t necessarily lost for tax purposes; excess contributions can generally be carried forward and subtracted over future years, subject to the applicable rules.
The key point is that the Maryland state tax benefit is tied to the Maryland College Investment Plan. Simply contributing to an out-of-state 529 plan doesn’t provide the same Maryland subtraction.
Pennsylvania: A Much Larger State Tax Benefit
Pennsylvania takes a different approach.
For 2026, Pennsylvania taxpayers can deduct up to $19,000 per beneficiary in 529 contributions when determining Pennsylvania taxable income, or up to $38,000 for a married couple filing jointly when each spouse has sufficient income to support the deduction.
Another interesting difference is that Pennsylvania residents don’t necessarily have to use a Pennsylvania 529 plan to receive the state tax deduction. Pennsylvania’s rules are broader than Maryland’s, although there can be other state-specific considerations when choosing a plan.
Pennsylvania offers two 529 options of its own—the Guaranteed Savings Plan and the Investment Plan—and both can be used for eligible education expenses at schools in Pennsylvania and elsewhere.
West Virginia: Another State Tax Advantage
West Virginia also provides a state tax benefit for contributions to its 529 program.
West Virginia taxpayers may claim a reduction in West Virginia taxable income for qualifying contributions to the state’s college savings program. West Virginia’s SMART529 program also offers multiple plan options, including plans available beyond West Virginia residents.
The rules governing which plan qualifies and how the state deduction works are important, so West Virginia residents should review the current requirements before making a contribution.
And What Can You Use the Money For?
The biggest attraction of a 529 isn’t necessarily the state tax deduction. It is what happens to the money inside the account.
If the money is eventually used for qualified education expenses, the earnings can generally be withdrawn federally tax-free. Depending on the circumstances, that can include college and other post-secondary education, certain apprenticeship expenses, books, supplies, equipment and other qualifying costs.
And 529 plans aren’t just for college anymore.
Beginning in 2026, federal law allows up to $20,000 per year per beneficiary to be used for tuition at an eligible elementary or secondary public, private or religious school.
That means the account you’ve been building for years may be useful long before a child receives a high school diploma.
What If the Child Doesn’t Go to College?
This is one of the questions that can make parents hesitate about opening a 529: What happens if my child doesn’t go to college?
Fortunately, the money isn’t automatically trapped.
The account owner generally has the ability to change the beneficiary to another qualifying family member. So if one child receives a scholarship, chooses a different path or simply doesn’t need all of the money, the funds may potentially be redirected to a sibling or another eligible family member.
There is also another option that has received considerable attention in recent years. Under certain conditions, money from a long-standing 529 account may be rolled directly into the beneficiary’s Roth IRA. The rules are specific, including a $35,000 lifetime limit, a 15-year account-age requirement and other restrictions.
And, of course, a non-qualified withdrawal is still possible. However, the tax treatment can be less favorable because earnings may be subject to income tax and a 10% federal penalty.
Don’t Assume the Best Plan Is the One in Your State
With three neighboring states offering different tax treatment, families in the Tri-State area shouldn’t automatically assume that the 529 plan offered by their home state is the best choice.
The right decision can depend on where you live, which state tax return you file, which plan you choose, how much you’re contributing and how you expect the money to be used.
And remember, a 529 is an investment account, so investment performance, fees and investment choices matter, too. A state tax deduction is only one piece of the puzzle.
As the kids head back to school this year, consider adding one more item to your family’s education checklist: Are you taking advantage of the tax benefits available when saving for their future?
A little planning today could mean less financial stress when the college, trade school or other education bill arrives.
[Tax laws and 529 rules can change, and state rules are not the same from one state to another. Before opening an account or making a significant contribution, talk with your tax professional about how the rules apply to your particular situation.]
For help with tax planning, contact Saunders Tax & Accounting at http://www.saunderstax.com or call us at 301-714-2071. Open Monday – Thursday, 9 am to 5 pm. Awarded the Hagerstown Hot List 2026 and Hagerstown Chamber of Commerce “2023 Small Business of the Year” by providing a Less Taxing Life and More Prosperous Solutions since 1984!
