Saving for the Future

A 529 college savings plan is a designated account in which individuals can save for the education expenses of an assigned beneficiary. 529 plans offer tax advantages, including no tax on interest earned as long as earnings are used for qualified education expenses, and can be used at any eligible college or university in the country. The Massachusetts 529 plan is the U.Fund College Investing Plan.

A prepaid tuition plan is a college savings program that allows you to prepay up to 100% of tuition and mandatory fees at participating colleges and universities. This provides a safeguard against the increase in college tuition.

The amount you put away every month into your college savings account should be based on your personal financial situation and the projected cost of college when your child will attend. We have an 11-step checklist that can help you determine the amount your family can start to save on a regular basis. View that list here.

You may withdraw funds from your 529 account for any qualified education expenses. If you withdraw funds for any additional costs, you will need to pay taxes on your earnings of the amount withdrawn and will incur a 10% penalty on those earnings. You can learn more about 529 withdrawal penalties here.

If possible, it’s helpful to set up automatic, regular deposits into your college savings account, as this will ensure that you’re saving on a regular basis. Most 529 plans, including the U.Fund, allow you to easily connect your bank account to the plan and set up these automatic deposits. As well, some families choose to add to their 529 accounts when they receive a large influx of income, such as a tax refund or bonus at work.

It’s never too late to start saving for college, as every dollar you put away is a dollar that you won’t have to borrow (and pay back with interest) later on. But there are advantages to starting to save for college early, and we recommend that families start saving as soon as a child is born, or even earlier. You can learn more about the advantages to starting your college savings fund in your child’s early years in our presentation here.

You can definitely save in different college savings plans at the same time. Many families in Massachusetts choose to save in both the U.Plan Prepaid Tuition Program and the U.Fund 529 College Investing Plan. The U.Plan allows families to lock in current rates on tuition and mandatory fees, so they use their U.Plan savings for those costs. Putting additional funds into a U.Fund account allows families to save for other expenses, such as food and housing, books, and supplies.

Fortunately, saving for college has a minimal impact on a student’s eligibility for financial aid. The college financial aid formula only assumes that, at most, 5.6% of college savings will be used for college costs, so the remaining 94.4% is protected and essentially, ignored. That means that families who have saved for college can still receive a significant amount of financial aid, even if they’ve saved diligently over several years.

A savings account is a bank account that holds your money while typically earning interest. While a bank account can certainly be used to save for college, it differs from a dedicated college fund, such as a 529 investment plan or a prepaid tuition plan. These college savings plans are specially designed to be used for college and provide added benefits when used as intended.

Many states, including Massachusetts, offer a tax deduction for contributing towards a college savings plan. Massachusetts residents saving in the U.Fund or U.Plan can claim a MA state income tax deduction of up to $1,000 for single filers and up to $2,000 for married persons filing jointly.

An ABLE account is a tax-advantaged savings account for individuals with disabilities. ABLE accounts were created as a result of the passage of the Stephen Beck Jr., Achieving a Better Life Experience Act of 2014, better known as the ABLE Act.

Funds in ABLE accounts can be used for qualified disability expenses. Qualified disability expenses are broadly defined and include those related to the beneficiary’s education, housing, transportation, employment training and support, assistive technology and related services, personal support services, health, and basic living expenses.

Yes, there is no prohibition against an individual being the owner or beneficiary of an ABLE account and the owner or beneficiary of a 529 college savings account simultaneously. Also, 529 account funds can be rolled into an ABLE account without incurring any tax or penalty. The funds rolled over from the 529 plan are subject to the annual contribution limit of $18,000 into an ABLE account. The rollover may originate from any state’s 529 plan.