The investment or interest earnings are not subject to federal income taxes until paid out to the student beneficiary. Both types of plans usually carry state tax advantages in addition to the federal tax deferral. The state tax advantages can include tax- deductible contributions and tax exemptions or deferrals for money paid out to student beneficiaries. In the 2000 session, the Education Committee approved a bill to give taxpayers a state income tax credit for contributions to the Connecticut plan but the Finance, Revenue and Bonding Committee took no action on it. If the bill had been enacted, Connecticut would have been the only state to give taxpayers who contribute to its college savings plan a credit against Connecticut income taxes owed rather than a deduction from taxable income.
All contributions are state income tax deductible.
The Maryland Prepaid College Trust is a prepaid college tuition plan that allows purchasers to buy contracts in advance for future college costs. In 2000, Maryland also established a college savings plan called the Maryland College Investment Plan. The new plan will be available in 2001. According to information from the Maryland Higher Education Investment Board, the new program will have the same state tax advantages as the state's prepaid college tuition program. Purchasers of MET contracts can deduct the total contract price from their Michigan gross taxable income in the year they purchase the contract.