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529 Plans are a smart way to save for college, but I am not going to lie, I never heard of them until a few days ago. I follow personal finance advice on social media and found this lady’s comment asking about funding her child’s education. Then someone nondescriptly mentioned 529 Plans, and I googled them!
I am sharing below from my Googling and Bard (like ChatGPT but from Google) efforts. Please verify all information yourself! Do let me know in the comments what you think of all this. I am still kind of shaken that I had no idea about this so if you learned something new here please do share the post with a friend so they, too, can know their saving for college options.
Please remember to verify all personal finance matters you read on the Internet yourself or with the help of a financial advisor. My intention here is to share or point out ideas that you can look up on your own as I am not a professional financial coach or advisor. Finance is also deeply individual so you will know best about how you can utilize this information.
How Much Does College Cost in Massachusetts?
The cost of college in Massachusetts varies depending on the type of institution and the student’s residency status. For example, the average cost of tuition at a four-year public college in Massachusetts for in-state students was $35,143 for the 2021-2022 academic year. According to CollegeCalc, Tufts University is the most expensive four-year school in Massachusetts with an in-state tuition of $61,646. MIT’s is around $55,000. So we are talking something between 35-62k dollars per year for college whether you go public or private in Massachusetts. Ouch!!!
I know I picked an expensive state but this state does have a lot of colleges, that I can confirm!! There are one or two colleges in every neighborhood here in the Boston area and I don’t know how anyone affords anything. Indeed I am not sure if kids or college is a good idea but if you are in that boat, then I do hope this information is helpful. Instead of incurring massive student debt, maybe this can help someone or their child plan ahead for a potentially humungous cost.
Student debt vs saving for college
$60,000 times four years is $240,000, which is a lot. If you put away $4000 every year towards that, it would take 60 years! If you contribute $24,000 every year then it would take 10 years, so I imagine one would have to start right away or even before the kid is born to get this type of planning underway.
Better to plan out these numbers than be stuck with student debt, though. If these numbers seem ridiculous and hard, so will having to pay off such numbers later with interest!
I asked this Student Loan Calculator to do the math for payments on student loans with these inputs.
Simple Student Loan Calculator
Please provide any three values below to calculate.
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Result
| Repayment: | $2,761.93/month |
| Total Interest: | $91,431.35 |
| Total Payments: | $331,431.35 |
This, of course, confirms that you end up paying a lot more than just the principal amount of $240,000 if you take out a loan.
The cost of college is a financial burden
The cost of college can be a significant financial burden for families. So is there something out there that can kind of help with this? That is where stumbling upon the 529 Plan might be worth something. The tax benefits and flexibility of a 529 plan can make it a great option for saving for college.
If you are looking for a way to save for college, a 529 plan is an option. With a 529 plan, you can save money tax-deferred and use the funds to pay for qualified education expenses at any eligible institution of higher education. Fidelity Investments offers a 529 plan in Massachusetts called the U.Fund College Investing Plan. To open a U.Fund College Investing Plan account, you can go to the Fidelity website and follow the instructions.
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Anyone can open a 529 plan, regardless of income. The money in a 529 plan can be used to pay for qualified education expenses at any eligible institution of higher education, including colleges, universities, vocational schools, and apprenticeship programs.
Tax-deferred growth of money you save for college
There are many benefits to using a 529 plan to save for college. First, earnings in a 529 plan grow tax-deferred, meaning you don’t have to pay taxes on the growth until you withdraw the money to pay for qualified education expenses. Second, many states offer state income tax deductions or credits for contributions to a 529 plan. Third, the money in a 529 plan can be transferred to any eligible beneficiary, so you can change the beneficiary.
I did some Googling about available 529 plans and found what Fidelity offers which I share below. This is just what I found so far, do your own due diligence and there might be other ones that are better. I don’t know. Personally, I do not have a 529 Plan myself, not yet, anyway. But I am happy to learn along with you.
Opening a 529 Plan with Fidelity in Massachusetts
Fidelity Investments offers a 529 plan in Massachusetts called the U.Fund College Investing Plan. To open a U.Fund College Investing Plan account, you can go to the Fidelity website and follow the instructions. You will need to provide some basic information, such as your name, address, and Social Security number. You will also need to choose a beneficiary for your account and provide their social security number.
Once you have opened your account, you can start contributing money. There is no minimum contribution amount, so you can start saving whatever you can afford. You can contribute money to your account in one lump sum or make regular contributions.
The money in your U.Fund College Investing Plan account can be invested in a variety of investment options, including stocks, bonds, and mutual funds. You can choose the investment options that best meet your risk tolerance and investment goals.
Copying and pasting this information about the 529 Plan tax advantages and account details from the Fidelity website. Please verify this information yourself.
Tax advantages |
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| Earnings | Any earnings grow federal and Massachusetts income tax-deferred. |
| Contributions | U.Fund plan account owners are eligible to claim a Massachusetts state income tax deduction for contributions to the U.Fund plan made in the applicable tax year. Single persons may claim up to a $1,000 deduction, and married persons filing jointly may claim up to a $2,000 state income tax deduction. |
| Withdrawals | Qualified withdrawals are free from both federal and Massachusetts income taxes. |
Account details |
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| Account maximum | $500,000 per beneficiary2 |
| Investment expenses | Fees vary, depending on your investment strategy: 0.35%–0.95% (Fidelity Funds) 0.11%–0.15% (Fidelity Index Funds) 0.40%–0.60% (Fidelity Blend) 0.05%–0.50% (Bank Deposit Portfolio) |
A gift towards saving for college
What is more, it seems you can have people contribute as gifts! I think that is pretty awesome and an option some might consider that directly benefits the beneficiary’s education plans. “Friends and family can send gifts directly to your 529 with our free, online college gifting service. Gifters don’t need a Fidelity account.”
Can someone make themselves a beneficiary of a 529 plan?
Yes, someone can make themselves a beneficiary of a 529 plan. There is no age restriction for beneficiaries, and account owners can even name themselves as the beneficiary. However, there are some potential drawbacks to making yourself the beneficiary of a 529 plan. For example, if you withdraw money from a 529 plan for non-qualified expenses, you will be subject to federal income tax and a 10% penalty.
Benefits of a 529 plan
There are many benefits to using a 529 plan to save for college. First, earnings in a 529 plan grow tax-deferred, meaning you don’t have to pay taxes on the growth until you withdraw the money to pay for qualified education expenses. Second, many states offer state income tax deductions or credits for contributions to a 529 plan. Third, the money in a 529 plan can be transferred to any eligible beneficiary, so you can change the beneficiary if your child changes their mind about where they want to go to school.
How to open a 529 plan
To open a 529 plan, you can contact a financial advisor or go directly to the website of a 529 plan provider. When you open a 529 plan, you will need to choose a beneficiary for your account. You can also choose how you want to invest the money in your account.
How much does it cost to open a 529 plan?
The cost of opening a 529 plan varies depending on the plan provider. However, most plans have no fees or low fees.
How much money should I save in a 529 plan?
The amount of money you should save in a 529 plan depends on your child’s college goals. However, a good rule of thumb is to save at least 10% of the cost of your child’s desired college.
How do I use the money in a 529 plan?
The money in a 529 plan can be used to pay for qualified education expenses at any eligible institution of higher education. Qualified education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
What are the risks of a 529 plan?
There are some risks associated with investing in a 529 plan. The value of your investment in a 529 plan can go up or down, and you could lose money. Additionally, if you withdraw money from a 529 plan for non-qualified expenses, you will be subject to federal income tax and a 10% penalty.
Overall, a 529 plan can be a great way to save for college. However, it is important to understand the risks and benefits of a 529 plan before you invest.
Can a 529 Plan Be Used to Pay for Room and Board?
Read more on this below! Again, I am not an expert so please read other articles to learn more about the topic.
Kathryn Flynn writes in her article: https://www.savingforcollege.com/article/using-your-529-plan-to-pay-for-room-and-board
Paying for Room and Board With a 529 plan
If the student is living on-campus, their qualified room and board costs will be equal to the actual invoice amount they are charged for housing owned or operated by the college. This typically includes housing costs and a meal plan.
Criteria for Expenses to Qualify as Room and Board
To qualify to use a 529 plan distribution to pay for room and board expenses, the student needs to be:
- Enrolled at least half-time
- Enrolled at an eligible institution, that is, a college or university that is eligible for Title IV federal student aid, and the expenses must be incurred during this period of enrollment
- Enrolled in a degree or certificate program, or seeking another recognized credential. This does not include continuing education.
- Not enrolled simultaneously in an elementary or secondary school (therefore students in dual enrollment programs are ineligible)
A parent cannot use a 529 plan distribution to pay the mortgage on a house or condo in which the student lives, but parents may be able to charge the student rent on this home. How interesting!
Please leave your comments below kindly!
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