Massachusetts sponsors just one tax-advantaged 529 college savings plan that allows parents to invest in their children’s educational future by starting out with a deposit as small as $15. Compared to other states' options, the Massachusetts plan has a high maximum intervestment. You can contribute up to $400,000 in a variety of portfolios designed for savers with different risk tolerance levels and experience. On the downside, expense ratios can get expensive for some portfolios at north of 1%. Though Massachussets does not sponsor an advisor-sold 529 plan, you can still get invaluable gudiance from a pro. Just use Smartasset's SmartAdvisor matching tool to get paired with an expert who can take stock of your financial goals to create a college savings plan that best suits you.
How Do I Enroll in MEFA?
You can enroll online or by calling 800-544-2776. You’d need the following information for yourself and your beneficiary: your full names, address, Social Security number or tax identification number and bank account and routing number for electronic contributions.
How Much Does the Massachusetts 529 Plan Cost?
The U.Fund College Investing Plan doesn’t charge an annual account fee like some plans that other states sponsor. However, each investment portfolio charges a total expense ratio that includes a program management fee, a state administrative fee and underlying mutual fund expenses. The total expense ratios for portfolios in the plan currently range from 0.11% to 1.16%. These aren’t charged out of pocket but factored out of your balance.
But keep in mind that fees are subject to change as are investment portfolio options. It’s important to revisit your investments over time.
Tax Benefits of the 529 Plan
Massachusetts taxpayers who open an account with the MEFA U.Fund College Investing Plan can deduct contributions up to $1,000 (single filers) or $2,000 (married couples filing jointly) from their state taxable income per account each year.
But because it’s a 529 college savings plan established under Section 529 of the Internal Revenue Code, all account holders enjoy some tax benefits. When you invest in the plan, your money grows tax-exempt as long as it’s invested. Your withdrawals are also tax-free when you use them on qualified higher education expenses.
But a word of caution here. The government could penalize you for not using these savings accounts as they were intended. You can take money out the plan at any time. But if you use the funds on anything other than a qualified higher education expense, you’ve made a nonqualified withdrawal. This withdrawal may be subject to federal income tax and a 10% penalty. You may also be also required to repay previously claimed tax deductions.
Find a financial advisor or qualified tax professional to discuss how any type of nonqualified withdrawal may affect you based on your individual situation. In addition, you should ask your advisor about any specific tax advantages that you may be able to take advantage of based on your unique financial situation.
What Are My Investment Options?
The U.Fund College Investing Plan lets you save for your child’s future by investing in a variety of portfolios that invest in different mutual funds. If you’re new to investing and want to leave the investment decisions to the professionals, you might be attracted to the plan’s age-based portfolios. Over time, these portfolios automatically change their asset-allocation, the mix of stock funds, bond funds and other securities they invest in. The objective is to become less risky as your child gets older or closer to college age by investing less heavily in growth-oriented options like stock funds and more in safer investments like bond funds.
When it comes to age-based portfolios, you have three types to choose from. One option utilizes Fidelity funds and seeks to beat a major market index in the long run. Another type of age-based portfolio has the same objective but utilizes funds from several investment firms. The third type invests in Fidelity index funds, which track a major market index. Generally speaking, index funds or passively managed funds, have lower fees. But actively managed funds aim for greater growth.
If you’re set on what you want your asset allocation to look like, you may be interested in one of the plan’s custom portfolios. These options break down into the following categories.
- Asset-allocation remains the same
- You can choose from either Fidelity funds or Fidelity index funds
Individual Fund Portfolios
- Each invests in one underlying fund
- Options invest in particular asset classes like stocks or bonds or a mix of several
Bank Deposit Portfolio
- Invests entirely in an FDIC-insured, interest-bearing savings account
- Seeks to preserve what you’ve earned
If you’re not sure what your risk tolerance is or what your investment mix should look like, you can use our asset-allocation calculator to get a better picture.
How Do I Withdraw Money from The Massachusetts 529 College Savings Plan?
You can request a withdrawal by visiting your account online. But before making that decision, you should seek a financial advisor who can guide you through the process in order to make the most of your hard-earned savings and avoid tax penalties. If you’re not sure how to seek professional help, you can use our SmartAdvisor tool. It asks you a few simple questions to connect you with financial advisors in your area.