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College Savings

What's the Difference Between the U.Fund and U.Plan?

The U.Fund offers flexibility, can be used for qualified education expenses, and is invested in the market. The U.Plan offers peace of mind, can be used for tuition and mandatory fees, and is invested in bonds.

Any way you can save for college is a good way to save. But there are certain vehicles that are specially designed to use for college and provide added benefits when used as intended. The most well-known types of these programs are 529 investment plans. But there are also prepaid tuition programs. MEFA offers both types of programs. The MEFA U.Fund is the Massachusetts 529 plan and the MEFA U.Plan is the Massachusetts prepaid tuition program. Those who are interested in saving for college sometimes have questions about the differences between the plans. So here's a quick breakdown of the two options.

U.Fund 529 College Investing Plan

The U.Fund is the Massachusetts 529 plan. The account owner contributes money into the fund, and this contribution is invested by Fidelity Investments in the market, and grows federal and MA tax deferred, and is tax free when used for qualified expenses. Contributions can be made throughout the year and can be done in the form of a check, online contribution, or an automatic withdrawal directly from a bank account. When the time comes for the owner to use the funds, as long as they're used on a qualified educational expense, there won't be any federal or MA taxes on the earnings.

The great thing about the U.Fund is its flexibility, as evidenced by the list of qualified expenses. They include tuition, fees, room and board, books, supplies, and equipment. The U.Fund can also be used at any accredited college in the country and even some international colleges. In fact, it doesn't even have to be used for college. You can use the U.Fund at accredited vocational and career training schools as well. Recent Federal legislation has also expanded qualified uses to include up to $10,000 in K-12 tuition, apprenticeship training, and repaying student loans.

U.Plan Prepaid Tuition Program

If the U.Fund offers flexibility, the U.Plan offers peace of mind. The U.Plan is the Massachusetts Prepaid Tuition Plan, and it allows you to prepay up to 100% of tuition and mandatory fees at each participating U.Plan college and university. This provides a safeguard against the increase in college tuition. Let me explain exactly how.

The money contributed to the U.Plan is not invested in the market, but in bonds backed by the full faith and credit of the Commonwealth of Massachusetts. When you put funds into the U.Plan, you choose one or more maturity years, which are the years that the Beneficiary (the child) is projected to attend college. Your investment buys a percentage (based on how much you save) of this year's tuition at each participating college and university, and the value of that percentage grows at the same rate as the tuition increases at each school.

For example, if you save $1,000 this year in the U.Plan for a child's freshman year in college, and a particular college costs $10,000 this year, then you have purchased 10% of tuition at that school. If, by the time your child attends that school, that cost has risen to $20,000, you then have 10% of $20,000, or $2,000 to pay toward tuition and mandatory fees. You can put funds into the U.Plan throughout the years and continue to add to your percentage purchased.

If your child doesn't end up attending a participating U.Plan school, you can transfer the funds to another child in your family or you can cash out and receive back what you put in plus interest.

Those are the basics of each program. I hope this gives you the information that you need to pick a path that's right for you. But you don't have to pick one or the other. You can invest in both programs, and lock in today's tuition at participating MA colleges, while investing in the U.Fund for room and board, books, and other expenses. Whatever route you decide to go, you will be glad that you saved.







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