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College Savings

Questions You've Asked about Saving for College

Learn if it's ever too late to open a 529 account, if you can use 529 funds for daycare expenses, how to save with multiple children, how you withdraw 529 funds, how grandparent 529 accounts work, and more.
Father and son using computer to learn about saving for college

We've had a handful of Saving for College webinars recently, in which we share information and tips about how and when to save for college, and also provide details about the two Massachusetts college savings plans, the U.Fund College Investing Plan and the U.Plan Prepaid Tuition Program. We love hosting live webinars, as it gives families an opportunity to gather the information they need to plan for the future and then immediately ask any follow-up questions of a live college planning expert. We received some great questions on those recent webinars, so we've listed them below, with answers, for anyone else who would benefit from these details.

Q: Is it too late to open a 529 college savings plan if our child has only one more year left of high school?

A: Not at all! You can still earn interest on your savings in the year ahead, and putting even a small amount of money away for college costs will help you when the college bill comes due. We recommend signing up for automatic monthly deposits so that you know you'll be adding to your account every month. Let friends and family know that you started an account so that they can contribute toward it on special, gift-giving occasions (like high school graduation!) over the next several months.

Q: Can you use 529 funds for daycare expenses?

A: You cannot withdraw funds from your 529 account to use for daycare expenses without incurring a 10% penalty and paying taxes on your earnings. In order to keep your 529 withdrawals tax free and without penalty, you need to use those funds for qualified education expenses, as defined by the IRS. We have more details here.

Q: Could I incur education expenses in one year and then withdraw the funds from my 529 plan to reimburse myself a few years later?

A: No, the funds you withdraw in a tax year from your 529 account must be for expenses incurred in that same tax year. So if you paid for books in September with a credit card, make sure to withdraw the funds from your 529 needed to pay for those books by the end of December.

Q: With multiple children, should I save the most for the oldest with the idea that anything "extra" would be available for other children?

A: It's really a family decision how much you save for each child, though we usually recommend that you set up automatic, monthly deposits of the same amount into each child's account. Of course, your children may receive gifts from relatives on birthdays or other special occasions into their individual accounts. And some families do add a bit more funds to an older child's account if they've started all children's accounts at the same time, as there's less time to save before that child attends college. But again, those specifics are best decided by your family.

Q: How do you withdraw your 529 money to use?

Check in with your 529 plan administrator to get the specifics for your plan. For the U.Fund Massachusetts 529 plan, if you'd like to send your funds directly to the college, you can use the Standing Payment Instructions form to set up payments to the school. If you'd like to transfer the funds directly to your bank account for use, you can add electronic funds transfer (EFT) to your account. You can also set up Fidelity BillPay®, the U.Fund's online bill pay service. Learn more about using your U.Fund savings here.

Q: The grandparents have 529 plans for our children. Should we start our own 529 plan for them or send checks to the grandparents?

A: Within the current financial aid model, withdrawals from a grandparent's 529 account are regarded as student income, and can affect a student's financial aid eligibility, so that's important to keep in mind. There are ways to avoid that treatment, but you need to understand how it works to do so. You can learn more about grandparent college savings here. Keep in mind that starting in the 2023-24 academic year, grandparent withdrawals will no longer count as student income. Withdrawals from parent 529 accounts do not affect student financial aid eligibility. The value of a parent's 529 account does count as a parent asset in the financial aid formula, but parent assets only minimally impact a student's financial aid eligibility. If you'd like to speak to someone at MEFA about where to save for college, we recommend reaching out to our College Planning Team at (800) 449-MEFA (6332).

Q: What happens if the college savings account owner passes away before the child attends college?

Most college savings plans allow you to select a successor owner. That person becomes the owner of the account in case the original owner passes away. Though this is often an optional feature, it's best to select a successor owner for every account just in case.

Q: For the U.Plan, what happens in the VERY unlikely event that a college's tuition decreases?

In the unlikely event that the tuition at a college does decrease, and the student decides to attend that school, the family will receive the cash-out value of the U.Plan account, rather than the percentage of tuition. This is always the case if the cash-out value is higher than the locked-in percentage value. Again, this only happens in very rare circumstances, as college tuition usually stays stagnant or increases (which is why the U.Plan is such a powerful savings vehicle). As a reminder, the cash-out value of the U.Plan is the amount originally invested plus interest calculated at CPI.

Need more guidance on saving for college? If you haven't yet attended one of our Saving for College webinars, you can watch our webinar recording here, or check our events calendar for an upcoming live event. And if you'd like to ask questions of one of our College Planning Team members, we're happy to provide answers. Reach out to us at (800) 449-MEFA (6332) or collegeplanning@mefa.org.

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