This step-by-step guide to enrolling in the Massachusetts U.Fund 529 college savings plan makes the process easier for parents and grandparents to understand how to open a 529 plan in Massachusetts.
1. Choose a 529 Plan
Massachusetts has only one 529 plan, the mefa U.Fund College Investing Plan managed by Fidelity Investments. The U.Fund College Investing Plan is similar to other Fidelity 529 plans.
Parents can invest in any state’s 529 plan, not just the Massachusetts 529 plan, so they may wish to shop around.
But, the Massachusetts 529 plan has a top 10 rating with 4.5 caps out of 5 for state residents. The Massachusetts 529 plan has among the best performance and the lowest fees of all direct-sold 529 plans.
Massachusetts provides a state income tax deduction based on contributions up to $2,000 per year for taxpayers who file tax returns as married filing jointly, and half that for single filers. The state income tax deduction is valid from 2017 through 2021.
Non-residents may invest in the Massachusetts 529 plan, but are not eligible for the state income tax deduction.
Massachusetts also offers the SeedMA Baby program, which provides a free $50 seed contribution to a new Massachusetts 529 plan opened for every baby born to or adopted by a Massachusetts resident, starting in 2020.
The Fidelity Rewards Visa automatically contributes a rebate of 2% of purchases to the cardholder’s Massachusetts 529 plan.
Fidelity also provides a free, online gifting service to make it easy for friends and family to contribute to a child’s 529 college savings plan.
2. Determine the Type of 529 Plan Account
There are two main types of 529 plan accounts: individual accounts and custodial accounts.
Most families will open an individual 529 plan account with a parent as the account owner and a child as the beneficiary.
This is in contrast with a custodial 529 plan account, where the child is both the account owner and the beneficiary. Since the child is a minor, there will need to be a custodian to manage the account on behalf of the child until the child reaches the age of majority. The custodian can be the child’s parent, grandparent or other relative. The beneficiary of a custodial 529 plan account cannot be changed.
Generally, most custodial 529 plan accounts are established when a 529 plan account will be funded with money from a custodial bank or brokerage account, such as an UTMA or UGMA account.
Everybody can contribute to any 529 plan account, including parents, grandparents, aunts, uncles and other relatives. You don’t need to be the account owner of a 529 plan to make a contribution to the 529 plan.
Custodial 529 plans that are owned by a dependent student and parent-owned 529 plans are reported as parent assets on the Free Application for Federal Student Aid (FAFSA). This provides them with more favorable financial aid treatment.
Generally, a 529 plan can have only one account owner. If the child’s parents are divorced, it is best for the 529 plan account owner to be the parent who is responsible for completing the FAFSA. If the 529 plan is owned by the other parent, it will have less favorable financial aid treatment.
If the parents are divorced and one of the parents has remarried, the account owner should be the child’s biological parent, not the stepparent. Otherwise, the stepparent could change the beneficiary to be the stepparent’s child from a previous marriage.
3. Complete the 529 Plan Application
To open a 529 plan account, visit the 529 plan’s web site to get a PDF account application or to apply online. Printed account applications can be submitted by mail.
The Massachusetts 529 plan account application requires the following information:
- Legal name of the account owner
- Legal name of the beneficiary
- Personal information about the account owner and beneficiary, including their residential and/or mailing address, date of birth and Social Security Numbers (SSN) or Individual Taxpayer Identification Numbers (ITIN)
- The telephone number and email address of the account owner
- Information about the account owner’s relationship to the beneficiary
The 529 plan account application will also ask for the name and personal information of a successor account owner, in case the original account owner dies.
The 529 plan account application will also ask you to pick an initial set of investment portfolios.
If the application form is confusing, call the 529 plan’s toll-free number to ask questions. The toll-free number for the Massachusetts 529 plan is 1-800-544-2776.
4. Fund the 529 Plan
You will also need to transfer funding into the new 529 plan account.
There are several ways of depositing money into a 529 plan. These include mailing a paper check to the 529 plan and transferring the money electronically from your bank account.
All 529 plans allow you to set up automatic contributions from your bank account. You will need to specify the contribution amount and the contribution frequency (e.g., biweekly, monthly, quarterly, annually). The 529 plan will also need the bank routing number and account number for your account and a voided copy of a preprinted check or preprinted deposit slip.
Other options include a rollover from another 529 plan, money from a Coverdell education savings account or money from the redemption of a qualified U.S. Savings Bond.
Many people start off with a small, automatic monthly contribution and increase the amount after a few months. If your goal is to save about a third of the future cost of a public college education, start saving $250 per month from birth. If you can’t handle that big a contribution, start off with what you can afford.
The minimum initial deposit is $15. Subsequent contributions, including automatic contributions, must be at least $15. The minimum payroll deduction amount is $15 per pay period.
There are no annual contribution limits for a 529 plan, but you can give up to $15,000 ($30,000 as a couple) each year without incurring gift taxes or using up part of your lifetime gift tax exclusion. 529 plans provide 5-year gift tax averaging, so you can give up to 5 times as much money ($75,000 or $150,000 as a couple) in a single year and have it treated as though it were given over a 5-year period.
Massachusetts 529 plans have a cumulative contribution limit of $400,000. After the 529 plan account reaches this balance, it can still earn interest and appreciate in value, but no additional contributions will be accepted. Most people do not reach this limit.
5. Choose Investments for the 529 Plan
After the 529 plan has been opened and some funds have been deposited into the 529 plan, it’s time to choose investments for the 529 plan. The number of investment options is limited, making it easier to choose.
Most people invest in an age-based portfolio, which starts off with an aggressive mix of investments such as stocks and gradually shifts to a more conservative mix of investments as the child approaches college age.
The Massachusetts 529 plan has three age-based portfolios. One invests in actively-managed funds, one invests in index funds and one is a blend of the two.
The Massachusetts 529 plan also offers 12 static portfolios, including five single-fund portfolios, six multi-fund portfolios, and a FDIC-insured bank deposit portfolio. The single-fund portfolios include a money market fund, a bond index fund, a S&P 500 index, a total stock market index and an international index. The multi-fund portfolios include aggressive, moderate and conservative index funds and aggressive, moderate and conservative actively managed funds.
You can change your investment choices up to two times a year.