Every tax season, U.Plan customers contact us looking for any relevant documentation they need to file their taxes. But not every U.Plan saver will receive tax paperwork. After all, saving in the U.Plan provides tax advantages that actually make tax ramifications quite limited. So what does and does not trigger tax paperwork for the U.Plan, and what tax forms will be sent?

There are two tax forms you may receive from the U.Plan.

One form is a 1099-DIV

There are two circumstances in which you may receive this form from the U.Plan.  

• Pre-Bond Purchase Interest: When you first invest into the U.Plan, your contribution is placed into a money market fund and it gains interest at the money market rate. In August, your contribution plus the interest that accrued on it is invested in General Obligation Bonds and locks in a percentage of tuition and mandatory fees as a U.Plan certificate. If the interest that accrues on your contribution exceeds $10 before the bonds are purchased, that will generate a 1099-DIV.
• Post-Maturity Interest: When investing in the U.Plan, you select maturity years. Those are the years in which you plan to use your funds. If you don’t use your U.Plan funds in the year they mature, you can hold on to those Tuition Certificates (and keep the funds in your U.Plan account). If you make that choice, interest switches from accruing at the rate of CPI back to the money market rate, just like before the bonds were purchased. And just like before the bonds were purchased, if over $10 of post-maturity interest accrues in a given year, this will trigger a 1099-DIV.

Whether or not this needs to be claimed on your taxes depends upon your overall profile and is a question for your tax preparer.

The other is a 1099-OID

Beginning with tax year 2022, MEFA will be sending out tax form 1099-OID to U.Plan customers. A 1099-OID is a 1099 for Original Issue Discount. The reported amount is the increase in value that a Tuition Certificate has demonstrated since its original issue.

You will receive this form if you have certificates that mature beginning in 2022 and then certificates that mature going forward. Customers with later maturity years will not receive a form until their certificates mature.

The reported number depends on whether the certificate was used and how. For certificates that have been cashed out to owners or have simply been retained and not used, the reported amount will reflect the CPI interest that has accrued at the maturity date.

If the certificates have been sent to a college for a percentage of tuition, the reported number also reflects the additional amount that MEFA includes in the payment to the college to help guarantee that the customer gets what he or she is owed at the college.

It should be noted that this reported amount is listed as tax-exempt OID. As we are not tax professionals, we strongly advise you to contact your tax preparer with any questions about reporting the tax documentation you received

And if you have questions about the U.Plan, please reach out to our U.Plan team at (888) 590-5653. We’re happy to help.