Financing Education

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529 College Savings Plans

Saving for a college education is a long-term investment. It’s wise to start early.

Qualified federal and state tuition programs, known as 529 plans, can help you plan for higher education expenses. These programs offer tax incentives to assist families with financing future education costs for their children and grandchildren.

Savings plans vary in form and benefit, so it helps to know your options before you invest.

What are 529 Plans?

529 plans are named after the section of the tax code that governs them. Contributions to 529 plans grow tax-free, and the government doesn’t assess federal income taxes on 529 withdrawals.

There are two types of 529 plans. Massachusetts offers both:

• Prepaid tuition plans, such as the MEFA U.Plan, allow investors to lock in the current tuition rate for eligible public and private colleges and universities. For example, if you invest in four years’ worth of tuition today, this amount will still cover four years of tuition, even if rates rise in the future.

• College savings plans, such as the MEFA U.Fund Plan, allow investors to contribute to an account for higher education expenses, including tuition, room and board, books, and fees. Contributions grow federally tax-free, and the rate of return depends on the performance of the underlying investments.

  College savings accounts do carry some investment risk. Market conditions will determine whether the value of the account increases or decreases. Most states offer more than one portfolio option, with varying levels of risk.

Do 529 Plans Vary from State to State?

Yes, each state offers plans with different investment options, restrictions, and fees. You can invest in a 529 plan from any state. Massachusetts offers tax deductions for 529 contributions, up to $1,000 for individuals and $2,000 for couples filing jointly.

To check specific tax advantages and other in-state plan incentives, visit the College Savings Plan Network.

How are College Savings Plans Sold to Investors?

Plan advisors use two methods to sell college savings plans to investors:

1. Through a financial advisor, brokerage firm, or bank
2. Directly from the state-sponsored plan

Make sure to ask about any commissions or fees when dealing with an adviser or broker. Also ask about any existing relationship advisors may hold with their recommended plans.

Important Points

• Start saving as early as you can.
• Compare 529 plans to find the best one for your needs. Always ask questions.
• Research state tax breaks and incentives.
• Ask about commissions and sale fees when consulting with financial advisors.
• Verify that advisors don’t have an existing relationship with the plan they’re recommending.

Checklist for Selecting a 529 Plan

Use these questions to compare different 529 plans:

• ✓   Who can open the account?
• ✓   Are there any minimum contribution requirements?
• ✓   What are the investment options?
• ✓   What are the risks?
• ✓   What is the plan’s refund policy?
• ✓   Does my state offer any tax advantages for contributions or withdrawals?
• ✓   How much will I pay in fees and expenses?
• ✓   Do the fees and expenses outweigh any tax savings?
• ✓   What customer services does the plan provide?

Where Can I Find More Information?

• Visit the College Savings Plans Network for more information on savings plans.
• Visit Saving For College for unbiased resources about 529 plans.
• Visit FINRA’s online hub for College Savings Accounts.

Sandwich Generation: Caught in the Middle

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In 1981, social workers Dorothy Miller and Elaine Brody coined the term “sandwich generation” to describe adults responsible for their own financial needs as well as the care and support of their children and elderly relatives.

If you’re a member of this generation, you may find it difficult to balance financial decisions with the needs of your family. It doesn’t help that nearly half of sandwich generation members lack adequate means to finance their own retirement.

Most consider paying for a child’s college tuition a parental responsibility. But they also may need to contribute significant funds for elderly care, especially as people live longer and health care costs continue to rise.

All these factors can leave a member of the sandwich generation stuck between competing interests.

Your Children

Your children are watching and learning from you. Have an open dialogue with them about the importance of financial planning. Show them how to investigate before investing. Children raised with money management skills can better prepare for their own financial success.

Children are a significant financial obligation, and parents of college-bound children often pull from their retirement nest eggs to finance college education. This isn’t always the best solution. You can use other resources for educational expenses, such as scholarships, grants, loans, and work-study programs.

• Teach your children about basic financial concepts and model responsible money management.
• Weigh the impact of using retirement assets for your children’s education.
• Decide who will pay for your children’s education. Talk to your children about exploring education financing options.
• Set financial ground rules and expectations if adult children (boomerang kids) move back home.

Yourself

If you’re nearing retirement, and lacking sufficient assets, you may feel pressured to make quick investment decisions. This could lead you to miscalculate the risk levels needed to achieve your financial goals. It’s challenging to understand the risks with investing, and not every investment may work for you.

• Organize your financial records, including brokerage statements, bank records, and insurance documents.
• Start retirement planning early. Review your investments, financial goals, and risk tolerance.
• Confirm that your broker or financial adviser is registered to sell investments or provide advice.
• Create a realistic budget and control your debt.