When Will I Receive My U.Plan Tax Paperwork?
Every tax season, U.Plan customers contact us looking for any relevant documentation they need to file their taxes. But not every U.Plan saver will receive tax paperwork. After all, saving in the U.Plan provides tax advantages that actually make tax ramifications quite limited. So what does and does not trigger tax paperwork for the U.Plan, and what tax forms will be sent?
Let me first dispel the biggest concern of U.Plan customers by stating a fact of the program. Distributions from the U.Plan carry no Massachusetts or federal tax consequences. So using the funds will not prompt you to receive any tax documentation. (If you live in a state other than Massachusetts, please check with your tax preparer regarding your state's laws.)
Prior to Bond Purchase
The only tax form you may receive from the U.Plan is a 1099-DIV. There are two circumstances in which you may receive this form from the U.Plan. When you first invest into the U.Plan, your contribution is placed into a money market fund and it gains interest at the money market rate. In August, your contribution plus the interest that accrued on it is invested in General Obligation Bonds and locks in a percentage of tuition and mandatory fees as a U.Plan certificate. If the interest that accrues on your contribution exceeds $10 before the bonds are purchased, then that will generate a 1099-DIV.
It's important to note that once you do have U.Plan bonds purchased, the CPI interest that accrues on those bonds does not result in tax documentation being generated.
It's also important to remember that when investing in the U.Plan, you choose maturity years. Those are the years in which you want to use your funds, and thus the years in which your bonds become liquid. If you don't use your U.Plan funds in the year they mature, you can hold on to those Tuition Certificates (and keep the funds in your U.Plan account). If you make that choice, interest switches from accruing at the rate of CPI back to the money market rate, just like before the bonds were purchased. And just like before the bonds were purchased, if over $10 of post-maturity interest accrues in a given year, this will trigger a 1099-DIV.
Remember, simply requesting a distribution of your U.Plan funds will not result in tax paperwork being generated, nor will any of the CPI interest accruing on purchased bonds. Only money market interest in excess of $10 accruing in one year, either before the bond purchase or after the bonds have matured, will generate your 1099-DIV.
If you have questions about reporting the tax documentation you did receive, please contact your tax preparer. And if you have questions about the U.Plan, please reach out to our U.Plan team at (888) 590-5653. We're happy to help.