Yes, Maryland does conform with Federal tax law in allowing a lifetime use of $10,000 from a 529 plan to pay student loans.
Thanks for the response. A few days ago I came across a Maryland 529 bulletin (dated Aug 2020) that, in part, states "Amounts paid as principle on any qualified education loan are not treated as Qualified Education Expenses under Maryland.
This appears to contradict your statement. Could you please advise?
Thanks!
There are two issues.
1. If a distribution is made form a 529 plan, up to 10,000 may be applied to pay student loan. That is true for Federal and State.
2. Maryland has a CREDIT for student loan payments, but the criteria for that is quite different. The credit does not have anything to do with 529 distributions.
Information about Maryland Student loan credit
Thanks for your response.
Sorry, but I'm still confused. The Maryland 529 bulletin (dated Aug 2020) that, in part, states "Amounts paid as principle on any qualified education loan are not treated as Qualified Education Expenses under Maryland."
That statement seems to contradict the responses I have received.
If you take a distribution from a 529 plan and do not use the money for qualified education expenses, then the income earned on the funds is taxable. So, you are inferring that since the payments on a loan are not qualifying education expenses, distributions form the 529 plan used for that purpose would not qualify for special tax treatment.
The 529 bulletin, however, is referring to education expenses you can consider for purposes of qualifying for an education credit. You cannot pay on your student loans and use that as qualifying expenses for an education credit, but they are qualifying expenses for purposes of excluding your 529 plan distributions from taxation.