Which is the best way to save for college? This chart shows how the U.Plan and the U.Fund stack up against other popular options.

U.Plan Prepaid Tuition ProgramU.Fund College Investing PlanCustodial Accounts (UGMA/UTMA)Coverdell Education Savings AccountTaxable Account
Ownership / Control of AccountInvestorInvestorCustodian, until beneficiary reaches age of majorityParent or legal guardianInvestor
Guidelines for UseCovers a fixed percentage of tuition and mandatory fees for undergraduate students at 80 public and private colleges and universities in MAQualified expenses (tuition, room, board, books, required supplies and equipment) at any accredited post-secondary school in the US• If used before age of majority, must be used for child’s benefit • No restrictions when under the control of the beneficiaryQualified expenses (tuition, room, board, books, required supplies) at any accredited post-secondary school, or primary or secondary education expenses, until beneficiary turns 30None
Adjusted Gross Income LimitNoneNoneNone• Single filer: $95–$110k • Joint filers: $190–$220k (phased out)None
Annual Contribution LimitNone• None • Cumulative limit = $375k • Annual gift limit = $70k ($140k per couple) per beneficiary without incurring federal gift tax treatment• None • Annual gift limit = $14k ($28k per couple) without incurring federal gift tax treatment• $2k per beneficiary under 18 • Multiple taxpayers who meet AGI limits can make contributions to a single account None
Tax Benefits•Earnings are federal and MA tax free, with some limitations2 •If used for tuition and mandatory fees at participating school, withdrawals are federal and MA tax free•Withdrawals are federal and MA tax free if used for qualified expenses. • If not, earnings are taxed as ordinary income and subject to 10% federal penalty • No 10% penalty in the event of scholarship, death/disability of the beneficiary, or rollover to another 529 planMay be federal tax free or taxed at the beneficiary’s potentially lower rate• If used for qualified expenses, then earnings are federal and MA tax free • If not, then taxed at account owner’s tax rate and subject to 10% federal penaltyTaxable in the year earned
Change of BeneficiaryPermitted, to a member of the designated beneficiary’s family, tax free and penalty freePermitted, to a member of the designated beneficiary’s family, tax free and penalty freeNot permittedPermitted, to a member of the designated beneficiary’s family, tax free and penalty freeNA
Effect on Financial AidTreated as account owner’s asset (up to 5.6% of parental assets factored into federal financial aid formula)Treated as account owner’s asset (up to 5.6% of parental assets factored into federal financial aid formula)Treated as beneficiary’s asset (20% factored into federal financial aid formula)Treated as account owner’s asset (up to 5.6% of parental assets factored into federal financial aid formula)Treated as account owner’s asset (up to 5.6% of parental assets, or 20% of child’s assets, factored into federal financial aid formula)

 

Generally, higher return potential involves more risk, so be sure to consider risk when comparing different options.

  1. In addition to these savings options, several states have established tax-advantaged prepaid tuition programs under Section 529 of the Internal Revenue Code. Those programs generally provide tuition lock-in features at state colleges and universities located within the sponsoring state. The Tuition Plan Consortium, a non-profit organization, has launched the “Independent 529 Plan,” a nationwide prepaid tuition program involving certain private colleges. Prospective purchasers of U.Plan Tuition Certificates may wish to review available information about all prepaid tuition programs and assess the relative benefits of each in light of their higher education savings objectives.
  2. See the Tax Matters section of the Program Description and Offering Statement for more information.
  3. Must be prorated over five years to avoid Federal gift tax treatment.