A 529 plan allows parents or loved ones to put money aside for a child’s higher education costs. However, the plans are often confusing and there are many options to choose from. The state of Massachusetts is one of a handful of states that offers a guaranteed prepaid plan on top of its state-run college savings program. Here are six facts about the Massachusetts 529 plan to help make this important decision easier
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- According to SavingsForCollege.com, Massachusetts offers two different programs for a 529 college savings plan. The first is a direct-sold plan called the U.Fund College Investment Plan. This plan is managed by Fidelity Investments with Fidelity mutual funds. The second offering is the Massachusetts Educational Financing Authority (MEFA) U.Plan Prepaid Tuition Program.
- While the MEFA offered U.Plan Prepaid Tuition Program is not actually a qualifying 529 plan, it still offers users a federal tax-free option as well as a tax-free option for Massachusetts income tax purposes. This is due to the fact that the participants of the U.Plan Prepaid Tuition Program are actually buying Massachusetts general obligation bonds.
- The U.Fund College Investment Plan has three age-based 529 plan options available. One uses Fidelity index mutual funds, one uses Fidelity mutual funds and the third uses a multi-firm option. That third option invests in funds that are offered through a number of different companies.
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- Different asset allocations offer different risks and potential returns; the greater the stock allocation, the better the chance for high returns. However, this also presents a greater risk for volatility over the short term of the 529 plan. On the other hand, the greater the allocation to bonds and short term investments, the less risk involved but the lower the long-term returns could end up.
- The MEFA U.Plan Prepaid Tuition Program works at 80 universities and colleges in Massachusetts. The percentage of the plan is based on how much is contributed at today’s college costs. That percentage is also locked-in so it will be the same when your child enrolls in college. If your child chooses not to attend a participating school, the investment is returned without penalty and with interest.
- Massachusetts is one of the few states in the U.S. that guarantees the prepaid 529 plans, which makes the MEFA U.Plan Prepaid Tuition Program a good bet. According to Forbes, only Massachusetts, Florida, Mississippi, and Washington offer guarantees on the prepaid plans being risk free. Other states don’t offer the guarantee, which means that they won’t promise to cover a child’s education if the tuition outpaces the investments.
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