5 Things to Know About 529 Savings Plans

$702 billion. That’s how much Americans spend annually on post-secondary education.

Granted, if your child pursues a post-secondary education your share of that will be considerably less. Even so, are you prepared to shoulder the current average $153,080 price tag of a four-year college in the U.S.? Or the $225,000 cost of some “above average” institutions?

The good news is there is a way to make paying for education a bit easier: a 529 Savings Plan. Here’s what you need to know.

1. What is a 529 Savings Plan?

A 529 Savings Plans is an investment account that works a lot like an IRA. You (and even grandparents and other family members) invest in stocks and bonds throughout your child’s life. When needed, you can make tax-free withdrawals to cover qualifying expenses related to education—including K-12 tuition, apprenticeship programs, books, room and board, and even student loan repayment.

It’s important to note that like an IRA, the value of a 529 will go up and down based on the performance of your investments.

2. How does a 529 Savings Plan work?

529 plans are sponsored by states, and each plan offers a variety of investment portfolios to choose from, typically managed by major investment firms. The Massachusetts 529 plan, called the MEFA's U.Fund College Investing Plan, is managed by Fidelity Investments. It includes age-based portfolio options that automatically adjust risk levels as the beneficiary gets closer to college age as well as custom portfolios you can build to better align with your risk tolerance.

3. Who’s responsible for contributing to and managing a 529?

The account owner—usually a parent or grandparent—maintains control over the 529 account and can contribute to it at any time as well as change beneficiaries; meaning you can transfer unused funds to another qualifying family member if needed.

Currently, there are no annual contribution limits for Massachusetts 529 plans, other than the annual gift tax exclusion and 5-year gift-tax averaging. There is, however, a high cumulative contribution limit of $400,000 per beneficiary.

4. Does a 529 impact financial aid?

 529 plan assets are considered parental assets on the Free Application for Federal Student Aid (FAFSA), which can impact financial aid eligibility but is more favorable than student-owned assets.

5. How can 529 funds be used?

Originally designed to exclusively cover the cost of college tuition, 529 funds can now be used for K-12 tuition expenses (up to $10,000 per year) and student loan repayments (up to $10,000 lifetime limit per beneficiary).

Here’s a look at qualifying uses for 529 withdrawals:

•   College tuition and associated fees
•   Vocational and trade school tuition and fees
•   Apprenticeships
•   Elementary or secondary school tuition
•   Student loans
•   Off-campus housing
•   Food and meal plans
•   Books and supplies
•   Computers

If you have questions reach out to a member of our Branch Banking Team. 

DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, investment or legal advice.