Saving for College with the U.Fund
Saving for college may seem like an overwhelming task, but with the U.Fund 529 College Investing Plan, you can save in an account that offers affordability, flexibility, and powerful tax advantages. Host Jonathan Hughes speaks with Massachusetts guidance counselor and U.Fund account owner Kate Ryder about how she selected the U.Fund, her experience opening her account, how she’s able to save on a regular basis, and why saving for college is important to her. Jonathan is also joined by Julie Shields-Rutyna, MEFA’s Director of College Planning, who discusses how she used funds from her U.Fund account to pay the college bill for her two children and how families can begin saving for college with the BabySteps College Savings Plan. If you enjoy the MEFA Podcast, please leave us a review.
Resources Mentioned in this Episode
Jonathan Hughes: Hi everybody. And welcome to the MEFA podcast. My name is Jonathan Hughes.
Julie Shields-Rutyna: And I'm Julie Shields-Rutyna.
Jonathan Hughes: And as always, we have a great show lined up for you today. We are recording this episode right in the middle of May and rapidly approaching Memorial Day weekend. So happy Memorial Day to everyone. But for us at MEFA, today and all month long, we are celebrating 529 Day.
So 529 Day is recognized on May 29th as a day to promote college savings and specifically 529 plans. And what are 529 plans? Well they're a tax advantage way to save for college, and career training, and K-12 tuition, and apprenticeship training as well.
So a lot of things you can do with 529 plans. Every state offers their own 529 program and MEFA is proud to offer the Massachusetts 529 program, The U.Fund. And so on today's episode, you're going to hear from Kate Ryder, who's a high school counselor in Massachusetts and a parent who's saving in a U.Fund for her son as well.
So I loved hearing what she had to say. So will you. So stick around for that. But I have to say Julie, that after I cast my net to find a U.Fund customer to come on the show and talk to folks about their experience. And I mean, I'm very grateful that Kate came on to do that, and she was fantastic. But I realized that I have sitting across from me, virtually that is, a U.Fund customer who not only saved for her children, but actually used her savings for their college education.
Is that right?
Julie Shields-Rutyna: That is right.
Jonathan Hughes: So that was a long lineup. But before we get into my conversation with Kate. Can you give a little more detail into it. Cause I talked a little bit about what a 529 plan is. But can you talk about what a 529 plan is before we get into how you used your funds?
Julie Shields-Rutyna: So like you said, a 529 plan is a tax advantage saving plan that was designed to help people pay for college.
And recently it's been expanded to cover K-12 expenses and apprenticeship programs. So in Massachusetts, it's the U.Fund 529 College Investing Plan. And that is offered by MEFA and Fidelity Investments manages the program. So what that means is that Fidelity handles the account side.
They manage the investments and the service. All of that. So you can open an account with whatever amount of money you choose, no minimum to open, and you can even open it and not put any money in at, at the beginning and then fund the account as you go along. Now as the market grows, and I say that let's hope the market grows, I guess the market can do this a little bit.
But you hope that the money that you invest in the U.Fund will grow tax deferred and that's nice. And then when it comes time to use the funds, as long as you use those funds for qualified educational expenses, then you never pay any taxes on those earnings. And that could be over many years.
Jonathan Hughes: Okay. So as long as you use them for qualified educational expenses. So, you know what my next question is.
Julie Shields-Rutyna: Do you want me to tell you the qualified educational expenses?
Jonathan Hughes: Yes, I do.
Julie Shields-Rutyna: They are things like tuition, fees, room and board, books, supplies, any required equipment and living expenses that a student would need to be in college.
And that's quite a lot. So any college that's accredited in the United States is eligible, and even some international colleges that are able to receive U.S. federal funds. So very flexible program.
Jonathan Hughes: Yeah. So everything you mentioned right then relates to college, but you said earlier that you could use U.Fund savings for other expenses aside from college as well.
Julie Shields-Rutyna: Well, yes, in fact, so they keep expanding these qualified educational expenses, which is nice. So now you can use these funds for career training programs and again, as long as they're eligible to receive federal funds and many are. And also you can use them to pay off, well you can use them to pay K-12 tuition up to $10,000 a year. And to pay back student loans for a one-time $10,000 amount.
Jonathan Hughes: Now I do want to go back to those eligible expenses for college now. So the reason is I've had a lot of conversations, some of them long conversations, with parents about exactly what they were able to use the 529 money for. So we already said tuition and fees, room and board, books, supplies, and equipment. What about living expenses?
Julie Shields-Rutyna: So it depends. So what happens is the college sets a cost of attendance for the student, which includes all of those things I mentioned. And so if a student, let's say is living off campus, the college has set an amount for what that might cost.
And so you really need to have, it just has to fit within that college's cost of attendance budget. So the family and students should be in touch with the financial aid office to make sure, but as long as it fits within that cost of attendance budget, then that is an eligible expense.
Jonathan Hughes: So I think it's worth mentioning something that we don't talk about all that often. What are some things that are not eligible expenses, but that some people might assume are eligible expenses.
Julie Shields-Rutyna: Yeah. I think the one that comes up the most or that I get the most questions about is transportation. That seems like that really is part of the cost of attendance that the school puts together.
You know, the school would put together maybe some small transportation expense, but you really can't, that's not an eligible expense for qualified education expenses. And I think that's mainly because they want to make it clear. A student can not buy a car with these 529 funds. And I think that's a question that a lot of students have, they buy a car to travel to college, but that is just not considered a qualified educational expense.
Jonathan Hughes: Let's talk about your experience.
Julie Shields-Rutyna: Yeah, so I started when my kids were maybe, one was in elementary school and one was in middle school. And honestly, I wish I started earlier, but you know, like I started working at MEFA and I was paying attention to families that would come to me to ask for help.
And they would show me their college financial aid offers. And I would see that those financial aid office didn't necessarily cover everything. And that was happening more and more each year. And so just working with families and helping them plan. I definitely wanted to be planning for myself.
And so I started, I just opened the accounts and that's the key. I think a lot of times people are wondering, when should I open? How much should I put into start? How much should I put in monthly? And those are all great questions, but the bottom line is you can figure that out. The most important thing is to, number one, open the account, just get it open.
Cause that's good to do as early as possible. And then put in what you want and what you can, and if you can make it automatic payments, so it happens monthly and you don't have to think about it, that's really the best.
Jonathan Hughes: I was going to ask you if you did that.
Julie Shields-Rutyna: I did. Right away, because I do that with some other expenses too. And I think it's just so nice that every month I don't have to say, oh, do I have any extra money to put in the 529 plan? Because who knows what my answer would be. So if that just happens automatically, that has made it very easy. And then honestly, over time, if I got a raise or if my kids maybe got some money for a birthday or a holiday from a relative, then I would just either increase the amount I was putting in monthly, the automatic payments, if I felt I could afford that, or I would just add a one-time payment sometimes.
And I would just do that whenever I could. And I think people, people worry that, oh, I'm not saving enough. But the truth is, save what you can. And you'll be really surprised at the consistency of just doing it over many years.
Really. It really adds up and when my kids became college age, I at least had a good amount in there to make me feel like I could get started with paying their college bills.
Jonathan Hughes: When it came time to use the funds, what was that process like? What'd you do?
Julie Shields-Rutyna: You know, it was very easy. I called Fidelity and there's a group at Fidelity that is the college planning experts.
So they do this all the time. They have all the answers, and I just told them exactly what I wanted to do, that I wanted to take the money and I wanted to pay the school directly. You have some choices. Sometimes people want the money to come to them. And the person on the telephone took all of that information.
And then, you know, gave me all the details about what they were going to do. And they were able to send that directly to the college. And once you set that up with them once, then, I sometimes still call because they are so helpful, but you can also go online and see your account online and it's easier. You can just withdraw the money yourself and have it go to the college.
Jonathan Hughes: Well, I guess I'll ask you, if you are getting distribution sent to you as the owner, and you're going to pay the college. What's that like, what should you keep for tax purposes?
Julie Shields-Rutyna: Yeah, I would say, make sure you just keep a copy of that college bill so you'll have the date of the college bill, and make sure you're withdrawing the funds in that same tax year. And as long as you have that record, that shows that that was a qualified expense.
Jonathan Hughes: What would you say to someone who hasn't opened a college savings account yet?
Julie Shields-Rutyna: Jonathan, you and I have been doing this work for a long time. This was really helpful to me. I sent two kids to college and I still actually, I still have one who has one more year left.
And that actually my U.Fund might be running out. I'll have to piece it together, but it's helped me get a long way toward paying these college bills, and I have never talked to a family who said they wished they hadn't saved. Every family says, I'm so glad I started this and I wish I saved even more. Every family.
Jonathan Hughes: 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 or so and answered by our college guidance experts. And remember, if you have any questions, please reach out to us at email@example.com. Or you can call us at 1-800-449-MEFA. Or you can reach us on social media at Facebook at MEFAMA, on Twitter at @mefatweets and on Instagram at mefa_ma.
Today's question comes to us from Cindy. Who's just checking on if her BabySteps deposit has arrived. So that was kind of a flimsy pretext of me just saying, Julie, can you explain the BabySteps program?
Julie Shields-Rutyna: Sure. Well, you know, we're in this field, right? So we know about paying for college and how savings can be helpful, but not everyone knows that. And in general, when someone just has a baby, they're not necessarily thinking I need to save for college.
Right. I mean, it seems so far away. They have many more immediate concerns. And so there's really a wonderful program that's through the State Treasurer's Office and the Office of Economic Empowerment within the State Treasurer's Office called BabySteps. And MEFA works closely with that office. And it's that every baby born in the state of Massachusetts, born or adopted in the state of Massachusetts, can receive $50 as an incentive to open a U.Fund account.
And the hope is that this incentive will put that in the mind to people who might not be thinking about it or thinking about other things and will get people to say, oh, that's a good idea. I'm going to start this process. Let me learn more about it. And find out how great it is to save. So what someone needs to do is just open a U.Fund account within the first year of the child's birth or adoption.
And if a person does that, automatically they will receive $50 into the account through the BabySteps program.
Jonathan Hughes: If you have any questions about BabySteps, if you're eligible, if you are related to someone who may be eligible, or know someone who may be eligible, and you want to find out more information, you can visit mass.gov/babysteps.
And if you have any questions about saving for college, whether it's BabySteps or U.Fund or planning, saving, paying for college at all, you can call us up at 1-800-449-MEFA. Or you can email us at firstname.lastname@example.org because we have a bench of college guidance experts waiting to answer your call.
Now let's go to my interview with counselor, saver, and mom Kate Ryder.
Kate Ryder: Hi, my name is Kate Ryder. I am a school counselor in Massachusetts for high school students. And I have a child who is one and a half years old. So we are saving for him for college.
Jonathan Hughes: Was that something that you knew you were always going to do once you were having a child, that you were going to open up a savings account for him for college?
Kate Ryder: Yes. We actually started saving and started the account before we even tried to get pregnant.
Jonathan Hughes: Oh, really?
Kate Ryder: Yeah, we were married. We knew we wanted kids. We were still kind of figuring out the timeline, but we figured, hey, we can always set aside some money now for the kids in the future. Just give it as much time as possible to grow. So we set up the account a couple months later, decide to get pregnant. And then here we are.
Jonathan Hughes: So what was that like setting up the account? What was the process of doing that? And then once your child was born, how did you switch that over?
Kate Ryder: So setting up the count was really straightforward. There wasn't much to it, it would just kind of creating the account, getting all the information that you need whenever you set up an account, but nothing like extra or super confusing.
Once he was born, we created a new account for my son and we were able to move the funds over, and that was pretty seamless. And we just kind of switched the money over and it's been pretty simple. And we even had to call a Fidelity at one point to get clarification on some stuff. And they were super helpful.
Jonathan Hughes: You actually did speak with the person there and they were able to help.
Kate Ryder: Yeah. Actually being able to talk to a human is such a big difference
Jonathan Hughes: Did you already know about 529 plans or did you have to do like any research as to like what college accounts, you know, how to save for college specifically?
Kate Ryder: Yeah. So we knew that there were plans out there that were specifically for college. We weren't sure, you know, which ones might be scams, which ones were worth it, what the whole deal was. So there definitely some research. We didn't do anything formal, like attend to workshop or seminars. Maybe we should have, but we just kind of did our own research.
And that’s how we found out about the U.Fund specifically and how that works in Massachusetts and kind of ran our own train.
Jonathan Hughes: Why did you pick the U.Fund specifically?
Kate Ryder: Because we know it's what Massachusetts offers, and both me and my husband are from Massachusetts, so it didn't really make sense to look at other states offerings.
And we also found that they gave you investment options with low fees. So there are those with high fees, but you can kind of customize it to what you want to. And at the time Massachusetts was offering a pretty significant tax deduction for contributions. So I don't think that's a permanent establishment.
Jonathan Hughes: It is actually!
Kate Ryder: Oh, it is?
Jonathan Hughes: They actually did make a permanent. Yeah.
Kate Ryder: Oh, that's awesome. Okay. That's news to me. I think when we were looking into it, it wasn't permanent. Right. But we knew that it existed, so it was like, all right. The tax deduction sounds pretty awesome. So yeah, we would just, once we figured out what it was, could really kind of open a lot of doors for our son in the future, as far as having money available to him. It was an easy decision.
Jonathan Hughes: You're a high school counselor.
Kate Ryder: Yes.
Jonathan Hughes: Do you think you were maybe more naturally attuned towards saving for college because you are a high school counselor?
Kate Ryder: Yes, I think so. So both me and my husband are you know, we value education. We've gotten post-secondary degree. We very much appreciate learning throughout life as much as you can. Because of my role as a high school guidance counselor, I feel like I have a specific lens into how much education can cost and what the cost of education brings you.
Like what does it mean to pay for community college versus a four year school, but then also, how are other ways I can spend my money if my kid doesn't want to go to college? Cause not every student goes to a four-year school after high school. So are you wasting money by saving if our student, our child doesn’t end up going that way. And I know through my experience that that's not the case at all, there are so many educational opportunities after high school that aren't four year schools.
So maybe your student doesn't want to do a four year school, but they do want to do community college, or they do want to do a trade school, or they do want to do some sort of program that's going to help them train to be prepared for a career. And from my understanding of the U.Fund, as long as it's an educational opportunity, the money can be used in that way. So I see students prepare for a lot of different lives after high school. And I also see the cost of all of that. And some students are fortunate enough to get help from their parents and some are really navigating the loan process on their own.
And I just know that whatever way I can support my child, when that time comes, I want to be able to do it.
Jonathan Hughes: If I can ask, how you contribute to the program?
Kate Ryder: Yeah, we did an initial contribution. And then we also opened it up to anyone who wants to give it as a gift. So like our parents or siblings will maybe offer a gift during his birthday or Christmas or something because he has enough toys.
So this is a great alternative plan for them filling my house up with more stuff. We also do a monthly contribution. So just a little bit more every month that we just set aside as part of our budget so that it will grow in addition to the compound interest, as it has already.
Jonathan Hughes: Did you set up a gifting page or send out a link, or how did you let invite other people to gift money?
Kate Ryder: Yeah. So when you're in the account, they offer you like a link for other contributions. I forget exactly how they phrase it, but they make it pretty clear. Like, hey, if you want to send this to people, they can contribute directly to the account without having like account access. And so for anyone who asks them, we just send that quick link over and they're able to do it.
My dad's done it multiple times and he's not technologically savvy. I don't mean to insult him, but there's room for error a lot of times when he's working the computer, and he's been able to do it fine.
Jonathan Hughes: And you find that to be an effective way to grow the account?
Kate Ryder: Yeah. I mean, I don't want to just like send it to people in way, like, hey, give our son money, but if they're like, what toys does he need?
I'm like, I would rather, you give, spend $30 here then at Walmart. Spend money towards his education. I don't need more plastic stuff in my basement. And it's been a great way to save my sanity. And they also feel proud to be able to contribute to his future.
Jonathan Hughes: Just out of curiosity, do you find yourself checking the balance or not very often?
Kate Ryder: No, not really. We'll check if we know someone said like, oh, we contributed something just because they typically ask us, can you check to make sure it went through? And that's the only time I go in. I find that out of sight, out of mind, a little better with this. It's an automatic contribution every month, so I don't have to think about the money that's going in. It's just already set aside. It's going to grow. And then when I check in on it, it's like, oh, look at this little nest egg that we've done without really feeling like we’re trying.
Jonathan Hughes: Have you used any, like, we have a whole bunch of tools on our site and stuff like that to sort of estimate how much your giving on a monthly basis and how much that's going to be by the time the child turns 18. Have you used anything like that? Either on our site or any other sites to sort of figure out how much you might have?
Kate Ryder: Yeah, I definitely have. I'm a sucker for those like fun calculator things where like how much has college and the cost and like this year and how much are your investments going to grow and everything. So I definitely did that, especially in the beginning when we were setting it up.
Because we also didn't have a real sense of like, how much should we contribute now? How much should we contribute on a monthly basis? What is helpful? What's isn't going to be enough. And, I mean, we ended up finding a number, but I think just like you said, having it in the first place is the biggest step.
And then anything that you can do to add to it on a regular basis is awesome. But those calculators and different tools I thought were pretty fun to play with.
Jonathan Hughes: Part of these calculators are future college cost calculators as well. And so when you see those big balance, I always talk about the first time, when my son was born, my colleague said, oh, let's see how much college is going to be for him when they get, you know, and you see this huge number.
So I wonder if you had that experience and what your thoughts were and what would you say really to somebody else who has that experience and they don't know whether they should be saving because that number is so big.
Kate Ryder: Yeah. So I definitely played with that calculator and the number is so big, but it wasn't incredibly shocking because this is a pattern that we've been seeing over years.
And especially in my role at that high school counselor, like you see the cost of college is going up and up. But we also see more and more like cost incentives and, you know, loan forgiveness. Alternative programs where you can save money in really creative ways. So even though I see the cost going up, I know that I can't actually predict the future. It's not looking at a crystal ball.
It's just saying, hey, if we follow these patterns, this is what we might see. And I'm not a hundred percent convinced we will follow those patterns. I'm hoping at some point, people will say this needs to stop and the cost needs to become a little bit more manageable.
But even if it doesn't, I know that there’s like I said, cost saving, creative solutions. So your student could go to community college for two years. And depending on their program, they could even live in a four year school. So in Massachusetts, for example, there's programs where if you attend community college, you might still be able to live at Framingham State.
So you're getting that experience of living at college, but you're paying the tuition of community college and right there, you've cut your cost of college by so much. So there's things like that, that make it slightly less overwhelming because I think there's only going to be more and more of those types of cost saving programs and opportunities, but regardless, school's going to cost money.
I don't see us turning into the European union anytime soon, where everything is so much more affordable when it comes to post-secondary education. So saving in my opinion is the best thing you can do, because you don't want to be thinking about when your kid is entering high school and you're like, okay, well they might want to do something after high school. Let's start saving.
Now that's putting a lot of pressure on you with such a limited time. So if you think your kid might go to college or might want education after high school in whatever form that is. Then I am definitely team save what you can create some sort of tax beneficial account because it's only going to help you in the future.
Jonathan Hughes: Well, that about wraps it up for us today. Once again, thanks to Kate Ryder for sharing her time with all of us. And if you liked the show and you want to hear more from MEFA on all topics related to planning, saving, and paying for college and career readiness. Please subscribe to us on Apple podcast, Stitcher, iHeartRadio or where ever you get your shows from. And whether you're a new or a regular listener, please remember to rate and review us so we keep doing what we're doing and getting this good information in front of people like you. So, Julie, thank you very, very much for joining me today.
Julie Shields-Rutyna: No, no. This is fun.
Jonathan Hughes: Thank you to our producer, Shaun Connolly, our editor Lauren Patten. Once again, my name is Jonathan Hughes and this has been the MEFA podcast.