How to Increase Your Savings with College Gifting

Jonathan Hughes: Hi, everyone. Thanks for joining the MEFA podcast. My name is Jonathan Hughes. And I’m joined as always by Julie Shields-Rutyna. Hi Julie.
Julie Shields-Rutyna: Hi Jonathan.
Jonathan Hughes: And we have with us, our friend and colleague, Shaun Connolly. He's a Communications Associate at MEFA, but basically if you've ever called us or emailed us, it's a pretty good bet that you've spoken to Shaun, which is lucky for you and frankly, lucky for us as well, that that's the case.
So he's going to be talking to us about savings. In fact, this whole show was going to be about savings. And Shaun is, aside from being our Communications Associate, he is the proud dad of a one-year-old boy.
And we're going to be talking to him about his experience saving for college, opening up his U.Fund account, talking about college gifting. And of course we had a lot of fun talking as we always do with Shaun. So you want us to stick around and listen to that. But as I said, the whole show we have decided to do about savings. And why? Because December is typically a very popular month for folks to begin saving or to sort of increase their savings.
And as you may know, MEFA for offers savings plans, the U.Plan and the U.Fund. So we see that peak in December, and honestly, I thought this would be a good time to really promote savings. So let's give folks an idea of how they can save and why it's a good idea.
And for that, I'm going to turn to you Julie, to talk about our savings programs.
Julie Shields-Rutyna: Sure. So MEFA has two college savings programs. The U.Fund is the first one and that's the Massachusetts 529 plan. So that is a tax advantaged way to save for tuition, fees, room and board, books, supplies, and any required equipment at any college or university that's eligible to receive U.S. federal funding.
So as a family, you put money in and it's invested by Fidelity. Fidelity Investments is our program managers. And then it grows, I say, hopefully grows with the market it's tied to those investments. But it grows without any taxes. And then when you're ready to use the money, as long as you withdraw it for one or more of those qualified expenses, you pay no taxes on any of the earnings, the interest that was earned.
So the other plan is the U.Plan, which is a prepaid tuition program. And your contributions are invested in bonds that are backed by the full faith and credit of the Commonwealth of Massachusetts. And this plan allows you to prepay a percentage of tuition at each participating college or university. So there were about 70 colleges and they encompass public and private colleges here in Massachusetts.
So that's a very high level explanation of both programs, but you can go to mefa.org and read more about those and look at all the other MEFA resources we have about those two programs.
Jonathan Hughes: Thank you for that. Now, why do you think that we see an uptick in savings at the end of the year?
Julie Shields-Rutyna: Well, it could be a lot of things. Sometimes I think some people maybe get holiday bonuses, maybe just kind of year-end doing housekeeping, so to speak, about on their finances. And I know you and Shaun will talk about that on the podcast, but one potential reason for an uptick is that in Massachusetts, there's a Mass state income tax deduction, which is in addition to that federal tax benefit that savers in both programs can claim.
So if you are a married tax filer in Massachusetts and you file jointly with your spouse, you can deduct up to $2,000 of whatever you contribute to either of those two plans on your state income taxes. And if you're an individual filer, then you can deduct $1,000 on your Mass state income taxes.
So, you know, I know from experience that there can be folks who are looking to get their contributions into the plans by the end of the calendar year. And that way they can claim that deduction on their taxes next year.
Jonathan Hughes: Okay. So I have a question. Let's say I have three kids and I'm contributing $2,000, married filer filing jointly. And I'm contributing $2,000 a year to each account. So that's $2,000, $2,000, $2,000. Do I get to deduct all of that $6,000?
Julie Shields-Rutyna: You do not, but that's a great question. And it's still wonderful. You should do that, but no, actually the limit is $2000 for married filers and $1,000 for individual filers.
Jonathan Hughes: So what if you're already saving in another type of account? So let's say if it's a different 529 or a different type of account.
Julie Shields-Rutyna: Yeah, I mean, just because you're a resident of Massachusetts doesn't mean that you need to save in one of these two programs, there are other types of savings accounts and other states have 529 plans that you are also able to invest in. That's fine. But keep in mind that in order to claim the state tax deduction, if you pay Massachusetts state taxes, the contributions you're deducting must be to either the U.Plan or the U.Fund.
Jonathan Hughes: Okay, good to know. So now that we're talking about statewide efforts to spurred college savings. Why don't we talk about BabySteps?
Julie Shields-Rutyna: Yes. So if you or someone in your family has a new baby, you can take part in this program. So this is a quick overview on the program, and it was developed by the Massachusetts State Treasurer and MEFA and another organization called Inversant. And it allows a family to have $50 seed money in a U.Fund account for every baby born or every child adopted in Mass.
And they have one year to claim that $50 by opening a U.Fund during that first year. And at a larger level, this is designed with the intent of promoting a culture of saving for college and career training in Mass. So these types of programs have become very popular in the country lately.
And there are some programs like this in Maine and Rhode Island. The city of Boston has a program, St. Louis, New York, San Francisco. And so this is our Massachusetts version, BabySteps.
Jonathan Hughes: Yeah. Shaun and I discussed that a little bit, he and his wife's experience opening the accounts, you know, there's sort of personal experience. So we'll talk about that later, but at a high level, as you said, with programs like this and research that led to programs like this, what has that research taught us about the value of college savings?
Julie Shields-Rutyna: Yeah, I think the real finding here in this research, and it's something we always talk about when encouraging people to save, is that saving even just a little bit can have a huge effect on families and the children.
So in a very direct way, if you have money saved and it's earning interest, that's money that you don't have to borrow. When used in conjunction with financial aid, that can go a long way toward paying for college. But even aside from that, regardless of how much your savings actually cover, we know that if a child knows that he or she has some college savings, they are three times more likely to attend college and four times more likely to graduate. And that benefit cuts across all income levels. So this is what the treasurer talks about when she talks about growing those college aspirations.
Jonathan Hughes: All right. So, you know, if you want to know more about that program, if there's a baby or newly adopted child in your life or in your family, and you want to take advantage of that free $50 seed money into a U.Fund account, you can visit mass.gov/babysteps. Thank you, Julie. Is there anything else you want to say to the folks listening about this, about savings, about generally encouraging savings, or you know, anything from your own experience?
Julie Shields-Rutyna: Yeah, I guess I would say that I did not start saving when my children were babies, but I started when I started working at MEFA, which was a long time ago. And so I think my kids were, you know, elementary and middle school. And I saved in both programs and my kids are now, one is in college, she's a junior in college, and one has graduated. And those savings were just absolutely huge for me to have when paying these college bills. I don't know how I would be still paying them without having some savings.
And again, I didn't save everything, but it was a huge help.
Jonathan Hughes: Thank you. So now we're going to head to the MEFA mailbag. And these are questions that have come into us from customers over the past two weeks and answered by our college guidance experts. Remember, if you have any questions, you can please reach out to us at collegeplanning@mefa.org, or you can call us at 1-800-449-MEFA.
Or you can reach us on social media, on Facebook and Twitter at MEFAtweets and Instagram at MEFA_MA. Today, our question comes to us from Suzanne and oh, wouldn't, you know, it's a saving question. It's a good one too. She writes, my son is a senior in college and I'm preparing to pay his last tuition bill.
Congratulations on that. When I do that, if there's money left over in his 529 plan, what are my options for using that money? I read that I can use it towards his college loans. Is that correct? Do you have any other suggestions for what to do with the money? He doesn't have any siblings. It's a good question, Julie.
Julie Shields-Rutyna: Yes. Well, yes. What you can do, you can now pay up to $10,000 one time toward his college loans. So that's great. So that is a perfectly good way to use whatever money is left in that 529 account. A couple of other things you can do. I know he doesn't have any siblings but that money could also be used for yourself.
It can be used for any other, any direct relative of your son. So a cousin, or yourself. So that is still your money and you can, other people can use it who are direct relatives of the initial benefits. And lastly, if there's still money left over after that, you can still take that money out.
And that is your money. It's just that what will happen is you will then pay income tax, regular income tax on that money when you withdraw it. And a 10% penalty of tax on any interest that accrued. Not on what you put in, but any interest that accrued. So you don't get the full benefit by just withdrawing it, but it's still your money and you can take it.
Jonathan Hughes: Can I ask, is the income tax as well on just the earnings or is it the contribution as well?
Julie Shields-Rutyna: It would be on the earnings.
Jonathan Hughes: And actually one thing occurred to me too, in this example, that didn't when I first read it, as we're talking about it. But if the student might be interested, you never know, in graduate school, they can use it for graduate school.
And if that isn't clear at the time, but you know, it may happen later. You can hold onto this money for a long time. Right?
Julie Shields-Rutyna: Absolutely. Yes. That's a great one that I did not say. Yes.
Jonathan Hughes: All right. So thank you so much. Remember if you have any questions, call us up at 1-800-449-MEFA, or email us at collegeplanning@mefa.org. We have a bench of college guidance experts waiting to answer your call. So now we go to my chat with MEFA’s Communications Associate Shaun Connolly.
MEFA’s Communications Associate Shaun Connolly joined me in 2016 and ever since has been providing guidance to students, families, and school counselors on all topics related to planning, saving, and paying for college, as well as editing and creating new content for MEFA.
Prior to working for MEFA, Shaun was a teacher and counselor in the Worcester public schools, and received a degree in Communications from Bridgewater State University. He of course also serves as Worcester’s ambassador to the U.N. So welcome to the show.
Shaun Connolly: How's it going? Thank you, it’s chancellor.
Jonathan Hughes: Thank you for being on the show.
Shaun Connolly: Yeah. Thanks for having me.
Jonathan Hughes: You are, of course, the proud father of a one year old.
Shaun Connolly: One year old. Just turned one.
Jonathan Hughes: Congratulations.
Shaun Connolly: Thank you.
Jonathan Hughes: You had the same experience that I had, which is that you have been talking about savings professionally for many, many years before actually starting to do it. And so, I wonder what that experience was like for you.
Shaun Connolly: Yeah. I also, previous to my one-year-old, I had opened up accounts for nieces and nephews as well. So I'd like, it was like, that'd be dumb for me to not do it for my own son if I'm doing it for the extended family, you know? But yeah, I mean, my mom opened up one for me, and so I knew.
And like my mom, I think my mom would, and my dad would, have told me to open up one, even if I wasn't working at MEFA. I mean, I was doing, you know, college preparedness type stuff anyways, even before I came here, in the Worcester public schools. So I knew to do it. Maybe I wouldn't have been as on top of it as I am now, but yeah, I still knew.
Jonathan Hughes: Yeah. That's a great point because knowing you as I do, I know you come from that background where your mom works in higher education access.
Shaun Connolly: She works at MassEdCO, shout out MassEdCO.
Jonathan Hughes: So now what did you feel like the process was like, whenever, you know, opening that 529 account? Was it, you had done it before you had started to work for MEFA?
Shaun Connolly: No, it was, all of them were while I was at MEFA. But, I mean, it's eas as long as you have all the info in front of you. I mean, it's really not painstaking at all.
Jonathan Hughes: I know you worked in college access, as you said. And you worked as a teacher and you worked in sort of this field of helping kids to go through the process of applying to college.
So this was something that was definitely in the forefront of your mind when you were, when you were expecting your son?
Shaun Connolly: Yeah, and it's funny, it's funny too, because I think, I think we'll talk about this too. The BabySteps thing, when we were at the hospital, the nurse was like, and so, you know, if you check this box, you'll get $50.
And I was like, don't worry, this is my job. I know exactly what it is.
Jonathan Hughes: So do that, explain BabySteps then if you can.
Shaun Connolly: Oh yeah. The treasury gives every new baby either adopted or born within the year $50. They put it right in your account if you open up a U.Fund. Check that box in the hospital and in all the birth forms.
And then you go and you sign up and the treasury gets notified to the U.Fund, and U.Fund puts the money in. It’s $50 free, it’s great.
Jonathan Hughes: Yeah. Did you see the box in the hospital?
Shaun Connolly: Oh they point it out to you. I mean, I don't know if all hospitals do this, but our hospital, St. Elizabeth, were like, it’s right here. This is the box to get $50 free. And we were like, great.
Jonathan Hughes: So did you open up your 529 account pretty much right after your son was born?
Shaun Connolly: As soon as we got home from the hospital. Yeah, it was like one of his first naps at home I just did it.
Jonathan Hughes: Oh really?
Shaun Connolly: I knew I was going to forget about it.
You know what I mean? I knew I was like, it was going to get bogged down with just being a new parent, and you know, it was right around Thanksgiving, which with Christmas coming up too, like, there's going to be a bunch of things we had to do. So I was just like, I'm doing it now. And it was, it took me, it took no time. I already knew it took no time based off opening up for my niece and nephew.
Jonathan Hughes: What are some of your saving practices or strategies? How do you make deposits into the account, for you personally?
Shaun Connolly: I have a nighttime side gig, where I make some money on the side from time to time, doing comedy and pretty much, we just take all the money we make in comedy, my wife and I both do it. And we take that money and we put it in the account.
Jonathan Hughes: Oh, is that right?
Shaun Connolly: Yeah. We pretty much take everything that we make doing, telling jokes and put it in his account. Plus, I mean, people still, they just want to give babies gifts because they love giving babies gifts. But we really try to hammer home, please stop giving us stuff. We only live in a two bedroom apartment.
Jonathan Hughes: I know how that feels exactly. Now let me ask you, so do you make contributions then sort of ad hoc, or do you have money taken out of your account automatically?
Shaun Connolly: Well, we won't do it automatically. That is a great feature. But no, it's just like, at the end of the month I'll take whatever cash and checks we've gotten and then make a deposit every month at the end of the month. I have like a little reminder on my phone.
Jonathan Hughes: Oh, that's excellent. I had no idea. Now you mentioned gifts earlier, and, you know, getting the word out to family and friends is something that we always like to talk about. And I know that you've done that because I know you've set up, though I haven't seen it myself, but I know you've set up a gifting page.
So I don't know if you could talk about that as well.
Shaun Connolly: Yes, it's nice. It's a nice little personal thing. You can put a picture in of the kid and when he's going to actually go to college, you can put the year in, and even what his dreams are, which I think is really funny for a kid who just turned one. I put in farts, cause I was like, that’s mainly what he does at this point.
Jonathan Hughes: And so have you had a chance to use the gifting page yet then?
Shaun Connolly: My aunt, she reached out to me the other day. She was like, we’re sorry we couldn't make his first birthday party. We haven't really thought about what to get him. I know you're getting a lot of stuff. What could, what could we do?
And I was like, here's the gifting page! I just texted it to her.
Jonathan Hughes: Oh, you just texted it to her?
Shaun Connolly: Yeah, I sent her the link right there.
Jonathan Hughes: And then they can give money directly?
Shaun Connolly: Yeah. There's a nice little button that says donate or gift or whatever it is. I can't remember the exact.
Jonathan Hughes: One of the things that I used to use too, I mean, one of my aunts, when I would see her would give me a check every so often for my son.
And, I don't know if this is something that you do too, but they have the mobile check deposit from the phone? You can take a picture of the check and just deposited in that way.
Shaun Connolly: Yep. Yep. We got three checks at the party and that's exactly what I did.
Jonathan Hughes: That's great. I mean, hopefully it sounds like you got a pretty good head start on things now.
Was it something that you definitely had in mind to do as early as possible, because you knew that it would sort of, the earlier that you start, you know it’s going to go?
Shaun Connolly: Yeah, we were just talking about the other day about let's try to get as much in now, because there's going to be a point where he recognizes that things are things. And he can get things. And he's not going to be appreciative of like, oh no, Aunt Mary put money in your savings account. And he's going to be like, I don't care. Where's the book I wanted? Where's the toy I wanted?
Jonathan Hughes: One of the things that I had an appreciation for really was the sense that a lot of families have when they look at the cost of college. And I remember when my son was born and my colleague said, let's see how much college is going to be from Malcolm when he gets to be 18.
And we did those that future cost calculator. And I remember seeing the number for a four year private school in Massachusetts, and it was enormous. Somewhere around $450,000 or something for four years. But I had the, it just became, I knew what that felt like, where I looked at that and thought, oh my God, I could never save that.
But then you're not going to be asked to pay that full amount.
Shaun Connolly: No, exactly. And yeah, I mean, my parents, they were able to help pay for Bridgewater State. Like the tuition and fees, not like all the extensive stuff, but tuition and fees. All four years of Bridgewater State were paid for with my 529. And so, I like put that in my head all the time. I know I'm not going to save $125,000. But I don't need to save $125,000. I know I don’t need to.
Jonathan Hughes: That's so great. I didn't realize that you're a second generation 529 customer.
Shaun Connolly: Yes, exactly. Yeah. We took all the federal loans, so I paid those and the rest of it was the 529.
Jonathan Hughes: Oh, wow. That's great. I know what it's like for families with young kids, they have a million things on their plate that seem much more immediate than saving for college, but you know, why is it important to do this now?
Shaun Connolly: For me, it feels so good to look and see that that we've already taken a little chunk out of whatever he's going to owe later on in life in college. You know, even if we just completely forgot about it tomorrow, it'll still grow a little bit and, you know, getting invested in the market, and we'll have some money for college. And that is already a relief to me.
And I know talking to parents now, when they're talking about sending their U.Plan or U.Fund money to a school. They're always like, hey, it's something, you know, that's a little bit less of a financial stress for me. Hey, those are books or whatever they say, you know, it's like, that's great.
And then it's like, yeah. I feel the same way already and he's only one years old.
Jonathan Hughes: Well, Shaun, thanks so much for being here. Best of luck to you on saving for college for you and your family.
Shaun Connolly: Thanks for having me, John. This is great.
Jonathan Hughes: Until next time. Happy holidays, everyone. All of our best to you. Thank you so much for listening. Bye.