Please note that this transcript was auto-generated. We apologize for any minor errors in spelling or grammar.

Jonathan Hughes: [00:00:00] Transition to my PowerPoint.

You can let me know if there’s any problem. If you can’t see me, if you can’t hear me, if you can’t see the slides that I’m talking about, please let me know and I can go ahead and fix that. But this is our saving for college with five 20 nines presentation. It should last about an hour. Uh, we’re gonna go over a lot of information tonight.

About saving for college in general and specifically using five 20 nines to do so. Before we get into that topic, I just wanna let you know who we are. We’re MEFA the Massachusetts Educational Financing Authority. We were a state, we were a state authority [00:01:00] and we’re created by the Commonwealth of Massachusetts back in 1982 with a public service mission to help families to plan, save, and pay for college.

And we do that in a variety of ways. If you wanna see all the ways in which we do that, you can go to mefa.org, which I will be referencing on numerous occasions during this presentation tonight, where you can follow us on our social channels. Um, we offer low fixed interest rate, uh, educational loans. Uh, we offer savings programs like the Massachusetts 5 29, which I will talk about, and we have free guidance from, uh, college.

Experts. Uh, so if you have any questions between now, I know we have a lot of families, uh, with young children. So between now and the time your child goes to college or figure out what they’re gonna do after high school, you’re gonna have questions. Please think of us as we are, which is a free resource for you to consult with any questions that you may have on that entire process.

Whoop, I went too far. [00:02:00] So what we’re gonna talk about today, sort of generally speaking, um, actually before I get into that, I want to encourage you to, uh, if you have questions, to submit them through the q and as. I know when you registered. You were asked to list, you know, some things that you wanted to know from this presentation, and I was looking over that earlier, and I, and I do plan to answer those questions, but if questions come up as they will, please submit them through the q and a.

My colleague Aila is here from me A and she’ll be answering those questions and, uh, possibly breaking through to, to let me know of some common questions that maybe, uh, should be heard by everyone. So, uh, I want this to be as interactive as, as you want it to be. It should run about an hour. Uh, I’ll be here after as well if you have any questions.

So if there’s a question that you wanna save until afterwards, I’ll be here for that. So, having said that, what we’re gonna talk about tonight, mainly, first of all, why saving for college is important, and I think [00:03:00] you have an idea that it is or you wouldn’t be here on a beautiful night, uh, inside watching me speak about it.

Uh, but we’ll talk about exactly why that is and just stress how important it is. Um, and we’ll talk about 5 29 plans of course, in in general what they are, uh, at a national level when they were created and what they’re here to do. We’ll talk about the Massachusetts 5 29 plan, which is the Mefa U Fund and the various features.

And then we will talk about strategies for saving, right? So what are some ways that families had have had success saving for college, especially using five 20 nines? And what are some ways you can do that? And now finally, I’d like to end by talking about how families actually do pay for post-secondary education.

And what that means When I say post-secondary education, I just mean anything again, that comes after high school. So college, yes, but not just college. So career training could be part of that. These are all wrapped in with five 20 nines. Of course, the idea is not that every child [00:04:00] has to go to college, but whatever your child is going to do after high school, we want them to be in a good position to succeed.

And the most common question that I have received over my many years at MEFA, uh, from families is how do people pay for college? Nobody really knows how families do this until they get to the point where they’re applying to colleges and filing financial aid forms and, and just sort of wondering how people do this.

So we’re gonna talk about some ways that people do it and, uh, some resources that that, that you can think about. Okay. Now why saving is important. Well, one of the. The, the most important thing probably that, that I’d like to leave you with is just some myths that we’ve heard about saving for college that prevent people or delay people from starting to save for college when it should not.

And the very first one that we hear all the time is, my savings will hurt my financial aid. So people are very concerned that if they start putting money away for [00:05:00] college, that colleges are gonna see that and say, oh, okay, well you know, we were gonna give you this $10,000 scholarship, but I see you have this college fund here, so we’re not gonna give you that.

That really doesn’t happen. And, you know, financial aid, we will talk about this in a, in a little bit more detail. The financial aid is kind of something that is difficult to talk a little bit about. Uh, but generally speaking, financial aid is awarded in two ways. Merit-based meaning scholarships, academic scholarships, athletic scholarships, those things are not affected at all by how much you have saved.

Uh, most financial aid is need-based and that is determined by your family finances. And so your savings are gonna be part of that picture. And again, I’ll have a little bit more information on this in a slide later on, but the truth of the matter is that income and typically parent income is the biggest factor in determining your financial aid eligibility and not your savings.

So, um, [00:06:00] your savings will help you when it comes time to pay for college. And, you know, there’s a whole formula when you’re. Graduating from high school and applying to colleges, and you’re filling out the, the fafsa, which is the free application for federal student aid or any other financial aid forms that you might be filing, and they’re gonna take all of your financial information and put it through a formula.

Your savings count for a very low percentage in that process. Most of it is based on income, so, um, your college savings really won’t impact your financial aid in most cases, in any significant way. The second myth that we’ve heard, uh, about saving for college is that it’s not worth saving for college if I can’t save the entire cost.

We know. The cost of college tuition, fees, room board, books, supplies, all that stuff that we all hear about can be very, very large, right? And so it’s easy to, to sort of hear that as we often hear it on the news or, or read it somewhere and think, [00:07:00] there’s no way I can save for that. And I’ll tell you from my life, when my son was born 11 years ago, I remember my colleague said, let’s see, in 18 years how much college is gonna be for your son?

And she, you know, we have a, a, a future cost of college calculator on mefa.org. And she calculated in. And I remember seeing that figure for four years what it was going to cost. And having a mini panic for a minute and thinking, oh my God, there’s no way I can save that amount. You know that there might not be, but then I remembered that that’s probably not the amount that I’m actually going to be asked to pay.

So there is financial aid available. There’s a lot of financial aid available. That sticker price of the most expensive college in your area is not necessarily the target that you may wanna have when you’re saving. So the truth is, is that everything that you have saved will is something that you don’t have to borrow.

Right? And so your [00:08:00] savings will actually help you. This is the main point that I wanna stress. It will give you more education options as far as colleges with different prices, but also other programs like, uh. You know, uh, semesters abroad or, or, or specialized programs like that that may sort of increase your scope.

I was just reading a book this morning, uh, and a student talked about that, that they had so much more, so many more options because they had, uh, their parents had saved in a 5 29 for them. The biggest draw I think, for most people is that it will reduce or hopefully even eliminate the need to borrow loans.

Of course, student debt is, is a huge story, uh, and is an important story. So, uh, savings can definitely offset that and hopefully eliminate it all together. And as we mentioned, it has a minimum impact on financial aid eligibility. And then finally, you know, this goes back to even, even having saved a little bit, helps anything that you saved [00:09:00] helps.

There are studies that have been done on 5 29 plans that show. That students who have five 20 nines set up for them and know that they have five 20 nines set up for them, regardless of the amount, even below $500 in there, uh, have a much greater college attendance and graduation. So it has an outsize impact on students attending college and graduating college, regardless of the amount saved and also regardless of the socioeconomic status.

So this benefits all income levels. That’s not just for, uh, upper income folks. It’s low to middle income students as well. So, uh, I love talking about savings because savings is just good across the board, and it’s important to talk about bo borrowing. It’s important to talk about aid. Uh, it’s a, it’s important to talk about those things, but savings is great because it’s just good.

If you can do it, great, even a little bit helps a lot. [00:10:00] So, saving is important. What are 5 29 plans? What we’re gonna talk about tonight, 5 29 plans have become sort of the investment college savings or college investment vehicle of choice for many families. They were created back in 1996, signed into law by then President Clinton, and they were created to offer families a tax advantage way at the federal level to save for college.

Um, it was strictly for college at that point. It’s been expanded, and one of the themes, we’ll get into it, but one of the themes of five 20 nines since they were created has been greater and greater expansion. So they were created at the federal level and then every state. Was then sort of tasked with creating its own 5 29 plan.

So every state did that. Uh, in Massachusetts, MEFA is proud to offer the Massachusetts 5 29 plan or the U fund. [00:11:00] So some features, since each state sort of creates their own, are across the board the same for every 5 29, but some may be different from state to state. So, you know, the account limit how much you can have in in, in a 5 29 account will differ from state to state.

Of course the investment options ’cause this is an investment vehicle. Um, you know, are, are going to be different from state to state, and then tax policies too. What, what kind of distributions are taxable and, and wonder what circumstances and, and tax, you know, deductions you can claim, et cetera.

Different states have different policies on those things, so I’ll try to be clear when I’m talking about the U Fund specifically, um, or how it works with the U fund and, and if that can be extrapolated to other five 20 nines as well.

Apelila Joseph: Uh, Jonathan, we just have a question in the chat. Um, will investment plans and strategies based on a child child’s age be discussed in this webinar?

Jonathan Hughes: Um, [00:12:00] I didn’t write it in, but um, but I can talk about it briefly. Um, and what I would say is that we, MEFA has contracted, and I’ll talk about them in a little bit, with Fidelity investments to offer, uh, the investments and to service the account for the, for the the U fund. This is a question that I would.

Pretty much refer to Fidelity. So, and then if, if you’re going through another 5 29, you know, whoever the program manager is, is for that. Um, but there are different types of investments and one of them is age-based. And what that means is that folks who invest your money are going to be basing their investment on when your child will need that money.

So they’re gonna start off investing if your child is very young in, in maybe a more aggressive way. And then as your child gets older and closer to being able to use the funds or needing to use the funds, they’re gonna start to transfer those investments over to more conservative options so that they [00:13:00] won’t suffer sort of ups and downs in the market before they have to use them.

Um, so that is an option with the U Fund for sure, the age-based portfolio. Um, and it’s a popular one. Hopefully that answers some of your questions, but if you have further questions about it, because there are, there certainly is more to say. I would recommend that you speak with Fidelity or whoever manages the, the investments of the 5 29 plan that you’re considering or, or currently use.

Apelila Joseph: Thank you.

Jonathan Hughes: Thank you. Um, oh, so I know there was a question beforehand about five 20 nines versus different types, other types of savings programs, and so I just wanted to sort of give you, uh, the lay of the land here over some of the options that we have. And this is from MEFA.org. This, so if you wanted to go and visit, uh, this.

Chart and see it in its com entirety. Uh, you can go to MEFA.org and, and look for the savings [00:14:00] comparison chart there. There’s the, the link to it or the, the URL you see four different or five different types. First one being the U Plan, prepaid tuition program, which is another MEFA offering. It’s not a 5 29 plan.

It’s a prepaid tuition plan. The second one is the MEFA U Fund College Investing plan. The third are custodial accounts, UGMA or UTMA accounts. And those are, that stands for Uniform Gift to Minor Act or Uniform Trust to Minor Acts, so different types of account. And then a cover Dell ESA account. And this is the one that was specifically asked about, you know, a a a 5 29 versus a cover Dell.

And then the, the last one is a, just a taxable account, which is the regular savings account. I’m gonna say this, um, we’re gonna talk about, we’re talking about five 20 nines. What makes 5 29 so powerful tonight? The best way to save is the way that you actually do save. So, um, you know, if you find the vehicle that’s best for you, then, then go for it.

Um, I think what if you, [00:15:00] if you’re looking at this here, um, specifically to contrast five 20 nines and cover Des, the biggest difference between five 20 nines and Cover DES is that, uh, there is a, a $2,000 limit to how much you can put in a cover Dell every year. And that’s, and that’s, that’s the limit. Um, five 20 nines have a much higher limit of what you can put in.

And actually you can’t actually open a cover Dell unless you’re below a certain income level. That’s, that’s sort of spelled out right there. Um, and there are different programs, they just have sort of different restrictions built into them, the five 20 nines. Um, I think they were an attractive option when they could be used for, I.

K through 12 education and five 20 nines could not, but now five 20 nines can, and we’ll talk about that later on. But, um, if you have any further questions about that, maybe I can help you out. But if you wanna just take a look at, at a high level and compare these [00:16:00] different types of vehicles, that’s the site to do so right there.

Apelila Joseph: Uh, Jonathan, we have a, a question in the chat along the, the lines of that last slide. Yep. So, if a parent, or if a parent or parents move or live in multiple states, are they able to open and fund multiple 5 29 or custodial accounts?

Jonathan Hughes: Um, yes, I believe so. They, uh, they, just because you live in one state doesn’t mean you have to use the 5 29 of that state so you can open up different accounts in different ones.

Um, I don’t know about being the owner of different 5 29 accounts. I don’t remember there being a problem with that, but I wanna look into it before I say exactly yes or no. Great. But you can have different types of accounts, so you can have covered up accounts and, and five 20 nines and, and UGMA upma accounts as well.

Yeah.

Apelila Joseph: Thank you.

Jonathan Hughes: Yep. Another question that I know some of [00:17:00] you had is, um, how five 20 nines work with financial aid. And so I said we were gonna talk about this in a little bit more detail, and this is where it is. Um, when you’re filing a FAFSA and somebody’s, I know there were a few specific mentions of the fafsa, um,

the FAFSA will ask and, and whatever financial aid form you’re filing will ask you to list your financial information to determine. How much financial aid you’re eligible to receive. And so the, the way they do that is they ask for parent income, parent assets, student income, student assets, the number of people in the household, you know, maybe some other information taxes paid, et cetera.

They’ll pull in your tax information from the IRS, um, and they’re gonna take all of that information, you know, what you have saved, what properties you own other than your primary residence, um, you know, investments that you [00:18:00] have, including five 20 nines. They’ll take all that information and put it through the formula and it’s going to come out with this number called the SAI the Student Aid Index.

That is the amount that the formula calculates that you as a family are to absorb for a year of college. So they, they’re sort of determining how much your need is. So of course, if you want financial aid, you want that number to be low, right? You wanna have a low student aid index. So they say, okay, you are only responsible to pay, you know, $2,000 or $5,000 or zero.

Uh, so the lower your state student aid index, the more financial aid that you’re eligible to receive doesn’t necessarily mean that you’re going to receive it, um, but that, you know, you’re eligible to receive it. So, um, in this formula, we’re assuming that five 20 nines owned by the parent are looked at as parent assets [00:19:00] and not student assets.

Now this might set off an alarm bell for you, but that’s actually better in terms of financial aid because parent assets are. Are only looked at at 5.6% of the total assets. So if you have $50,000 saved in a 5 29, they’re gonna take 5.6% of that and say, okay, we’re gonna expect you to pay this $2,800 because you have $50,000 saved in a 5 29.

And a 5 29 is treated just as any other asset. So they’re gonna take the total of all those assets for the parent and take 5.6% of it, and that’s what you’re gonna pay from assets. So I think if you thought about it, so does it affect your financial aid? It can, but I think you’d rather have the $50,000 on hand to pay and asked.

To be, you know, and, and sort of have your, your student aid index higher by $2,800. Uh, [00:20:00] so it affects financial aid very minimally. And the other thing is, if you have multiple 5 29, so if you have three children, for example, and you have a 5 29 for each child, um, when you’re filing a fafsa, let’s say for that first child, you’re only going to be listing the value of the 5 29 account for that child.

That’s actually a change. It didn’t used to be that way. You used to have to sort of, um, put all of your five 20 nines onto one FAFSA because the thought was you could change beneficiaries over et cetera, but now you don’t have to do that. So financial aid treatment, uh, of five 20 nines is. Very, very lenient.

Um, which just makes it, again, a more power, a, a, a really powerful way to save for college. So it should not, you know, delay you or prevent you from starting to save at all. Um, so now we’re gonna talk about the Massachusetts Youth Fund. [00:21:00] So we sort of talked about burnishing 5 29 plans as, as a great tool for use and to use and how they are, um, so flexible and they don’t affect financial aid all that much.

And so, as I said, each state has their own 5 29 plan. The Mefi U Fund is from Massachusetts. And, um, we like to point this out because it was a, a real great moment for us after many years. Um, and I know many of you have questions about, well, how do I pick which 5 29 plan to invest in? Do I have to go with the one in my state?

You don’t have to go with the one in your state. You go with the one that, that you like the best. Um, so, but one of the things that you might wanna think about is. What are the investments? How are the investments performing? And we’re very proud that, uh, that the MEFA U Fund is one of only five states, five 20 nines with a gold medal rating from Morningstar.

Um, so we’re, we’re, that’s, you know, the very top and we’re, we’re really happy about that. And as I mentioned [00:22:00] before, our investments are professionally managed by Fidelity Investments. So we’ve contracted with Fidelity to again, manage the investments and also service the accounts. So I have a couple of 5 29 accounts with the U Fund, uh, through Fidelity.

And so I have to call or, you know, talk to Fidelity every once in a while and they’ve always been fantastic. So, um, I always tell the story when I, when I needed to set one up really early in the morning for a gift on a Saturday, I was able to call, get somebody on the phone and have them help me through.

So. They’re, they’re really important partners for us. And if you have questions about, you know, the application or your investments, uh, you should speak with Fidelity. Now, how the U Fund actually works is, is this, uh, you would open an [email protected] slash u fund and you would put funds in, there’s no minimum to get started.

So you can open up an account with very little money or no money at all and, and, you know, fund it later. Uh, but when [00:23:00] you do put funds in, it’s invested and it’s invested in the market by fidelity and it grows with the market and it grows tax deferred, so there’s no taxes on the earnings as you are investing.

That’s the first benefit. Um, as I mentioned, there’s no annual account maintenance fee or minimum investment. An annual account maintenance fee would be a fee that you need to pay out of pocket every year to to be a part of the U fund. There isn’t any of that. It’s not gonna cause you anything out of your pocket.

There are fees associated with the U Fund as there are with every 5 29, but the fees are taken out of, uh, the earnings, the investments. So, um, and as I mentioned, as someone who has had a a a U fund for many, many years, um, I don’t know what my fees are, so it’s just not something that you really notice unless you, unless you wanna look for it.

Um. You do have to go through and pick your investment options. And this maybe goes to your question about age-based [00:24:00] portfolios. Um, you can pick an age-based portfolio, you can custom pick your portfolio from Fidel Fidelity’s options. So there’s a lot, a lot of different, uh, routes to choose from there. Uh, and there are FDIC insured portfolios as well.

So, you know, if you are really concerned that you are, you may lose some of the principle that you put in. You can invest in that bank deposit portfolio, which is insured up to $250,000. Um, but again. I, I cannot stress this enough. I don’t, I’m not a market person. I don’t know anything about the market.

MEFA in general. We don’t give any market advice or explanations really. Um, if you have questions about how you should invest, especially if you are like me, not really a seasoned investor, let’s say, um, you can talk to Fidelity and they can guide you through that process and get a feel for, you know, sort of your tolerance to certain types of risk and, um, and, and what may be important to you.

And, and, you [00:25:00] know, maybe it’s just going by the, the age of your child again. So, um, but that is something that you’ll have to go through and, and what, you know, choose your investment option. Now I mentioned that since you’re in Massachusetts, you, you don’t have to invest in the Massachusetts Youth Fund.

This is true. Also, you don’t have to use the funds at a Massachusetts College. That’s a question we get. Sometimes savings can be used at any accredited college or university nationwide, and even some international colleges, if they are set up to take US federal funding, you can use your 5 29 funds that way.

And, uh, still. Retain your tax benefits. Annual contribution limits are $19,000 per year, or $38,000 per year for married couples filing jointly. So this is the gift tax limit. So you can, you can put more funds in, but over 19,000, uh, for individuals or, or 38,000 for married couples, you would incur a gift tax on that [00:26:00] amount.

Um, and then there’s the $500,000 account limit. So no additional contributions. Once the beneficiary has a combined account, maximum of $500,000 and combined account maximum means this. If I have a, a 5 29 account for my son and my mother has one for my son as well, he has two over, over two different benefit.

Uh, two different owners, right? For the same student. Those accounts together, uh, that, that account limit is $500,000. So once that reaches 500,000, you can’t put any more in. I wish you all that problem. It’s not a problem that most people have, but, um, it would be a great, good problem to have. So essentially you put the funds in, they grow tax deferred.

But again, another key benefit for this is once you take the funds out, as long as you use them for qualified education expenses, you don’t pay any taxes on the earning. So that’s really the full picture of [00:27:00] the tax advantage of the e fund. It’s a tax advantage way to save for college or, or, or education.

So what are qualified higher, um, qualified education expenses, tuition fees, housing, and food. Books and equipment at, you know, any eligible institution in the United States or worldwide, if they take US federal funding. So any college, uh, you know, in the country or, or internationally you can use for these, these expenses doesn’t actually even have to be used for college, right?

So you can use these funds for, um, vocational training programs as long as the institution at which you’re taking those programs is, uh, an eligible institution that is, you know, able to receive federal funding from the US government. And there’s been a recent expansion. Remember I said that? The story of 5 29 has really been the story of expanding benefits.

A recent expansion [00:28:00] for, uh, for you can use up to $10,000 annually towards the cost of apprenticeships and up to $10,000 annually for tuition for private and public K through 12 education. That’s just something that I actually took advantage of this year for my son. And you can use the funds for a one-time disbursement of up to $10,000 to pay student loans.

So all expansions in five 20 nines, these are all qualified educational expenses that you can use your 5 29 funds to pay.

So a couple of questions that people often have about five 20 nines. What happens if I take money out for ineligible expenses? Um, so. Again, it, let’s say things don’t quite work out before I even get to take money out. Um, what happens if your child doesn’t go to college? Or, or what happens if [00:29:00] you started this fund and you can’t really use it, uh, the way you intended?

You have a couple of options. The first thing is you can hold onto these accounts for a really long time. So if your student finishes high school, they don’t know what they wanna do. They don’t go directly into college, you’re not quite sure you can hold onto that account almost indefinitely. Um, if that sibling decides to do something, enter straight into the workforce or, or what have you, those funds could also be transferred over.

That account could be transferred over to another beneficiary within the family. So that is an option. And again, if they choose a vocational training program, you may be able to use the funds for that. If none of those things work out and you have to take funds out for ineligible expenses, so you, you know, not as they were intended to be used, then there is a penalty for that.

And so the penalty is that the earnings are taxed at your rate of income. So you lose that sort of tax break and there’s a 10% penalty [00:30:00] again, on the earnings. So all the penalties are on the earnings and not what you put in. But those, those are what they are. So 10% penalty on the earnings and they’re tax at your rate of income.

There are exceptions for the 10% penalty, which are death and disability of the student, which we obviously don’t even really wanna think about. Um, but also scholarship. So if you get a scholarship and once again you can’t use the funds the way that you intended, um, you have to draw them out, then you’re not, I.

Assess the 10% penalty on that scholarship amount. Uh, but in even those three examples, the earnings still will be taxed at the, uh, at, at the owner’s rate of income. How are we doing aila? Do we have any other questions?

Apelila Joseph: Uh, one you touched on the, the scholarship questions. That was great. Um, one other question that came in, can the principal that has been put into the U fund be taken out without being taxed, um, at the federal or [00:31:00] state level?

And how is principal versus growth determined?

Jonathan Hughes: So you can, um, take those funds out, but they are, again, depending on how you use them, they may have different con, they may have taxable consequences, right? So if you used it to buy a boat or something, you know, you can take it out. But there’s gonna be a 10% penalty assessed on the, on the, um, earnings.

And then the earnings will be, uh, taxed at your rate of income. Uh, the second question, I’m not quite sure, and, but if they’re used for a qualified educational expense, then you just take it out and you don’t pay any taxes. On the second question, I’m not quite sure. Can you repeat it?

Apelila Joseph: How is principal versus growth determined?

Jonathan Hughes: Oh, and in terms of, oh, okay. The, the amount, the principle, the amount that you put in, um, is, is, is what is un untaxed or un penalized. The earnings on that investment would be, uh, the figure that are, that, that is assessed, if that makes sense.

Apelila Joseph: Right. Thank you.

Jonathan Hughes: [00:32:00] Yeah. And, yep.

Apelila Joseph: One other question. Um, can you just, and I don’t know if you’re gonna do this a little bit later, but can you just speak to, um, whether or not you have control of the investment strategy once you open a 5 29 account, um, or you just sort of go with the algorithm that has been established?

Jonathan Hughes: Yeah, sure. So I don’t talk too much about the investment strategies, but you do have options as far as when you’re going through the 5 29 application. The very last thing you do is choose your investment strategy. And there’s two basic ways you can go for that. The first one is an age-based portfolio, and the second is a custom strategy or custom portfolio.

If you choose custom, you have your sort of offerings from Fidelity. So you can’t just say, I wanna invest in, um, apple or something. You know, it, it, it’s gotta be within the portfolios that. Fidelity offers. So again, you can, you can consult with them, uh, on which one may be best for you, but if you wanted to, to sort of pick [00:33:00] your own options, you can do that from what they offer.

Um, and then if you’re going through the age-based strategy, you basically have a few, like three different options that you can choose from. Um, and, and those options sort of differ on how aggressively they’re gonna be moving funds around, um, you know, in the account. So that’s, that’s what I’ll say about that.

Apelila Joseph: Great. Thank you. Yeah. And then, yeah,

Jonathan Hughes: thanks. Mm-hmm.

Apelila Joseph: Another question just came in, so we might as well just throw one more in the next,

Jonathan Hughes: oh, and incidentally, before, before you asked, I wanna say, I did find you can have more than 1 5 29. I don’t know why I get skittish about answering that, but you, you can have, you can own more than 1 5, 29 plan, uh, for the same beneficiary.

If you’re moving around quite a bit, that’s fine. Thank you. So that was a question from earlier, but Yes, go ahead.

Apelila Joseph: So, um, the, another question just came in too, but they’re, they’re pretty related. So, um, are you fund plans owned by and contributed to by [00:34:00] grandparents counted as assets? And then along those lines, can another family member open a 5 29 for my child?

So,

Jonathan Hughes: oh yeah, those are great questions. And, and yes, I I, I didn’t know if I was gonna get to that or not, but I should have, uh, should have addressed it. ’cause I know people were asking about it. Yes, you can open, it does not have to be the owner, uh, the parent does not have to be the owner. So it can be a grandparent, it can be an aunt or an uncle, it could be a friend, it could be anybody.

Um, you know, it doesn’t have to be a specific relation to the student is what it’s, and then for grandparents, uh, no. So grandparent information is not looked at in terms of financial aid. So if grandparents are the owners of the account, uh, it is not looked at as an asset as it would be if it was a. A parent asset.

Uh, and there used to be a stipulation again, if you once that once you used it, that it would count to student income in the following year and student income is counted at, uh, 50% versus 5.6%. So people have to be really careful of how they do that. That’s not the case anymore. [00:35:00] So you really just kind of miss it all together in terms of financial aid for from grandparents.

Apelila Joseph: Perfect. So,

Jonathan Hughes: yeah, thank you. Oh, it’s okay. So this is another big deal that happened recently. This is the five 29th of Roth IRA transfer. So I know that this is something that people are asking about and um, you know, I think this is maybe a year or two ago, this was, this was passed into law. You know, when we’re talking about opening 5 29 accounts for children who were really young, you know, one of the most common questions is, well, I don’t know what’s gonna happen with them.

What, what if they don’t end up going to, to college? Am I gonna get hit with taxes if I take the funds out? Um, and so this is something that really means a lot to people. They’ve introduced this provision that you can now transfer unused 5 29 funds into a Roth retirement, IRA for the student. So, um, people really like this provision and [00:36:00] so it’s very popular.

It’s great. Uh, the Roth, I, there’s a lot of sort of stipulations to it, so they wanna make sure that people are using it. As it was intended, right? In that way that I described, I started saving for college. It’s not really gonna work out that way. Let me, you know, use it for my child’s retirement instead.

So the Roth IRA must be for the same beneficiary that the 5 29 plan was set up for. So that’s the first one. The account has to have been open for at least 15 years, so you have to have it for 15 years before you do it. The transfer amount must have come from contributions made at least five years prior, so they didn’t want people putting money in and then just rolling it right over again.

Let’s think about our story of. Opening the account and putting funds in over years and years and years, and then not being able to use it. The amount transferred annually is limited to the Roth IRA contribution limit, which is [00:37:00] currently $7,000 per year. So that’s the amount that you can transfer over every year.

And the lifetime transfer limit cannot, as of right now, exceed $35,000. We have a blog post on this, um, just to tell you how popular it is. According to the 2024 College savings indicator study, 48% of respondents were not aware that 5 29 funds could be rolled over to a Roth IRA. Uh, but again, people are really, really interested once they hear that.

Again, this goes back to savings just being good, right? So you have these funds, it’s just gonna help. So, as with any tax question though, we do have to say that we are not tax professionals. We’re not tax preparers. If you have questions about the taxability or, or you know. Tax law regarding these things you should speak with your, your financial advisor or your tax preparer, but that’s the most recent sort of expansion of 5 29 uses [00:38:00] a is there a question?

Apelila Joseph: Yes. Um, so let’s, let’s go with this first question ’cause it’s a sort of a follow up with the, the Roth IRA. So can you elaborate more on 5 29 accounts must have been open for at least 15 years. Um, and the transfer amount from contributions made at least five years. So can you just clarify those two stipulations just a little bit please?

Jonathan Hughes: Sure. So, um, and this is, I looked this up beforehand. It’s, I’m wondering if this is retroactive. It is not, it is not from what I understand retroactive, but you have to have had the five, the 5 29 account open for 15 years at least before transferring any funds over to a Roth IRA. So again, they don’t really want.

This to be a way for people to, you know, open up 5 29 and then just the next day transfer funds over to a Roth. IRA. This is for folks who have opened an account for a child, been saving for [00:39:00] years and years, and then when it comes time to go to college, it’s not gonna work out. They shouldn’t be penalized.

Let’s let them help their children in a different way and allow them to transfer these funds over to a Roth IRA. So the 5 29 has to have been created for the child for at least, it has to have been in existence for at least 15 years before you transfer any of those funds over to, uh, a Roth IRA. And again, any money that you transfer over has to have been in there for at least five years before you do so.

So, um, yeah, I mean, I don’t know what else to say, uh, what else, how else to further elaborate it, but, um, and this is pretty new, so, um, and since it’s not retroactive. I think it means that people have not done this yet. So, um, but, but that, that’s, that’s my understanding of how that works. I mean, is there, does that make sense?

Does, is there any further detail I can provide or,

Apelila Joseph: uh, [00:40:00] nope, that’s perfect. I

Jonathan Hughes: know. Okay.

Apelila Joseph: Um, and then we, we have another, um, follow up question to that. Um, is the maximum amount of 35,000 a lifetime maximum?

Jonathan Hughes: Yes. Is that from the five? From the 5 29? Yep. They can’t exceed the 35,000.

Apelila Joseph: Perfect. Okay. And then our, our last question, this is just again related to, um, you know, doing something else with your, your 5 29 funds.

Mm-hmm. So in the case of using the funds for something else, or a debt mm-hmm. Or disability or scholarship, and it was a grandparent account who is paying the taxes or penalties, um. On, on the account if to access those funds.

Jonathan Hughes: Right? So any tax, um, comes at the back end. So how the funds were used, this would go towards the [00:41:00] owner of the account.

Apelila Joseph: Great, thank you.

Jonathan Hughes: But I should stress, again, we’re not tax professionals. If you have tax questions, reach out to your tax preparer and, you know, don’t we, we’re not tax professionals. So that’s what I’m saying. Not not giving tax advice per se. Please don’t, uh, don’t think that. Okay. One thing I wanna mention too is baby steps and baby steps is.

The first statewide seated 5 29 program in Massachusetts. It was launched back on January 1st, 2020 by the Massachusetts State treasurers and Mefa. And essentially this sets aside $50 for every child born in Massachusetts or adopted in Massachusetts if they have one, one year to claim by opening a 5 29 account.

Um. So if you, we we’re very excited about this program. You see programs like this popping up a lot now in various [00:42:00] states, various cities. There’s a similar program in the city of Boston. Um, Maine has a, a similar program as does Rhode Island and Pennsylvania. So California has a few of them. They’re, they’re getting very, very popular.

They’re called CSAs, child Savings Account Programs. Um, so if you are perhaps eligible to claim your $50, if you have a child who’s newborn and not turned one or just adopted a child and within that first year of adoption, or know somebody who is or will be if they’re, if they’re pregnant, um, then you may wanna let them know about baby steps.

So we’re, again, just trying to promote college savings as we know, it’s sort of a, a, a general good, um, not just college savings, but savings for anything that your child may do after high school and, uh, trying to foster that culture. Within the state. So, um, it’s been very successful and we’re very happy, uh, and very proud to be doing that.

So just something I like to mention in case [00:43:00] you are or know anyone who is eligible, that’s baby steps. They can Google baby steps or go to mefa.org and look up baby steps and figure out how to open that up. One final benefit I’ll give you on the U fund, um, and this is something that happens in various states.

Many states offer tax deductions for contributions to their five 20 nines. And so Massachusetts does that as well. So contributions to your U Fund or Massachusetts state tax deductible up to $2,000 for married filers filing jointly, or up to $1,000 for individual filers. Those limits are per filer, not per account.

So if you have three children and you give 2000, 2000, 2000. You’re still only eligible to deduct 2000, but it is a deduction. Um, and it’s something that you can claim again on your state taxes. Just again, further sort of boost savings. If you’re not in Massachusetts, check with your state. You may have a similar program, and this is some one of those things [00:44:00] that’s gonna vary from state to state to state.

So some may have it, some may not have it, some have may have a very generous one. Some may have it for contributions to states outside of your own. Um. 5 29 plan, which, uh, I, I think there was at least one of those, which I kind of couldn’t believe. But, um, but typically it’s for your state’s program. So according to a 2024 CSI study, 66% of respondents said they would be more likely to save if Massachusetts offered a tax.

We do. So, um, again, just another incentive to save, and so more we can get the word out about that the better. I know some folks asked about how you can sign up for a 5 29 plan. Um, I can tell you what you would need to sign up for a U fund and, um, this is the information before you get started that you are going to need.

And I’ve sat. Next to folks who are opening, who are opening them up, [00:45:00] opening up 5 29 plans in new funds. So, um, you know, I know that it really helps to have all the information before you start doing that. So for the owner, and this is kind of a good time to talk about that owner, right? So the really the first decision, decision that you have to make when you are setting up a 5 29 plan is who is going to be the owner.

And that’s important because the owner is the only person that can direct funds out of the account, right? They have full control of the, of the account. Uh, so that can be a parent. It often is. It doesn’t have to be, it can be a grandparent, it can be another adult, you know, whoever that is. They do have to be over 18.

So the student is not the owner of the account. It’s gotta be an adult. Over 18, that person needs to supply their name, social social security number, or EIN, date of birth. Legal address, phone number, email address, and their employer info if they’re employed by info, just where you work. [00:46:00] Um, so that’s what the owner has to have for the beneficiary of the student student’s name, the social security number, date of birth and legal address.

That’s what you absolutely need. There’s also room to set up a successor owner, uh, which is another adult that can assume control of the account if something were to happen to the owner. Um, because the owner does need to be 18, so it’s not gonna automatically just sort of default to that student. Um, you can set that up at the time of creating the account or later on.

And I see we’ve got questions.

Apelila Joseph: Uh, you just answered one. Oh, okay. That was great. Um, and then, let’s see. Um. Can you just clarify on the, the tax deduction? Um, oh, yep. So grandparent opens a 5 29 account. Are they able to claim [00:47:00] that, um, contributions as tax deductions?

Jonathan Hughes: Yes. Again, third clearing that we’re not tax professionals, but, um, yeah, so if you’re, you’re, the law is written is if you’re making those contributions, you can claim that as a, as a deduction on your state income taxes.

Apelila Joseph: Perfect. Thank you. Yeah. Um, and then Jonathan, just in this presentation, are you just gonna get into, um, how, like if people are ready to utilize those 5 29 funds, how they’re able to do so

Jonathan Hughes: Very generally at the end.

Apelila Joseph: Okay, perfect. So, we’ll, we’ll see this one for the end.

Jonathan Hughes: Yeah. Yeah. And I can talk from personal experience too, as I just had just done exactly that.

Um, so I know people want to. Ask. We wanna know how you set up a U fund or how you set up a 5 29. This is how you can set up a U Fund account. You take all that information that you needed from the previous slide, you can visit fidelity.com/u fund. There’s a screenshot of it right there. You see that big green button that says open a 5 29 account.

You can click that button, uh, [00:48:00] and use that again, that information to complete the application. So you have to put in all that information for the owner. For the, for the beneficiary and then choose your investment options. Again, that’s the last bit of it. There are a couple of questions in there that, that are kind of head scratchers, just, and, and they are there because they have to be there legally.

Um, if you have any questions about those, you can call Fidelity, that’s the number. Or you can watch our walkthrough video that we did for the U Fund where we kind of go through the U fund application step by step and show how you do it. So, um, you know, for example, there’s a question about whether or not you or somebody in your household is a, a, a stakeholder, 10% shareholder in a publicly traded company or, or a FINRA or something.

And to most people. That is really confusing. I would never know what it was if I didn’t do this for a living. And, and, uh, I think it, it sort of, people might see that and go, oh, I don’t know if I should be filling this out, but you should be. [00:49:00] It. It’s doesn’t, you know, it confuses 99% of people that particular question and the people who it does not confuse, they know who they are.

So, um, you know, you might wanna go ahead and just watch that video and, and, and see how you go through. The video itself takes about as long as it does to open an account, which is about 10 minutes. So it’s a pretty easy process. And again, I can’t stress enough Fidelity’s available, uh, over the phone. I believe it is 8:00 AM to 7:00 PM No, it’s 8:00 AM to 8:00 PM um, Monday through Friday and, and some hours on the weekends as well.

I wanna talk about strategies for saving. So what are some ways that people have successfully saved for college? So the biggest thing start. Saving as early as possible. So using time to your advantage. It doesn’t matter how much you save, you know, save early. I would never tell anybody it’s too late to save.

And I know somebody asked if it was too late to save. Anything that you save is something that you don’t have to borrow. So [00:50:00] start putting money aside. Even if you are a year out from college, people even put 5 29 money away when they’re in college. So I would never say it is too late. You can start with a goal in mind and we’ll talk about that in a little bit greater detail later on.

But even if you don’t have a specific goal, shouldn’t, you shouldn’t get hung up on that. You know, you start with whatever you can do, taking advantage of unexpected funds like um, tax refunds, et cetera, using automatic transfers. So we know that people who get money automatically taking outta their checking account on a periodic basis do really well.

I always tell this story that when after we set up my 5 29 for my son, I said to my wife. You know, we gotta start, we gotta set up that, that, uh, contribution. You, she told me we had in fact been contributing for about eight or nine months. I just never saw it come out of my account, so I didn’t know it was happening.

So we know that people, you know, that is a really effective tool to save. One of my favorite things is getting the word out and [00:51:00] asking your family and friends to contribute. This image that you see here on the right is the gifting page that Fidelity is set up so you can set up a gifting page picture of your child the year that they’re ex, uh, anticipated to enter college.

You know what they wanna be when they grow up. Um, and you can create a link and just email that link out to family and friends on like birthdays or other milestones and people can gift money directly in using that link. So that is an awesome feature. I always love to talk about that. And I know people who have done it and it’s just such great, especially when really small children, you know, don’t really know that they’re missing out on a toy, for example.

Uh, but that’s something that you can do. And then finally, involving your child in the process. I know kids like to see how much money they have. We already know that knowing that they have money to save for them for college is gonna help them to go to college. But they like seeing the balance go up and, you know, I just, in terms of getting people.

Getting, getting your child, child to contribute to their own fund. God, I [00:52:00] I, I, I couldn’t imagine doing that with my son, but I remember speaking with, uh, uh, a financial aid person, uh, from a college who said that she made her daughter save half of everything she got and went into the, the college fund. And so, you know, I thought that was really cool because she told me, not only does she did that help her pay for college, but it became a habit that she did for the rest of her life.

You know, just put half your money away as soon as you get it, which is so great. Um, so it is possible, um, this is something that I wanted to call out because this is the college savings calculator that we have. And I know we had a lot of questions about how much money your, your, or how much your, your balance might grow.

And so we have this tool on MEFA.org where you can put in your initial deposit, you know how much money you have, and we have $50 here. Maybe this is the baby steps person. And then let’s say every month now I’m gonna put in $75. My child’s a newborn, so how much am I gonna have by the time they’re in college?[00:53:00]

And so it’ll give you your contributions and your interest earned. And you, you can see here the calculator, um, is, is estimating a 7% return over that time? And this is something that, that Fidelity has said. This is, this is in the average range. So it’s, it’s doable. Same thing here, and it’s a sort of a different way of looking at it, but if you’re thinking about financing a $10,000 college cost, um, if you borrowed that full amount, which you can do, and, and you know me as a lender, so I know this, I’ve seen people borrow, um, you can borrow whatever it is.

If that’s, if that’s your cost and you wanna borrow $10,000, you can do that. If you’re repaying that over 10 years at a 7% interest rate, well you’re gonna pay more than 10,000, right? So you’re gonna pay an extra $3,920. Assuming 10 years at 7%. So it’s gonna cost you 13,920 to, to borrow that. Whereas if you save with [00:54:00] 10,000 as a target, same rate of interest over the same time period, you’d only need to save 6,960.

So really almost half, uh, is what it’s gonna cost you to save and earn the interest rather than borrowing the full amount and paying it. So a hypothetical, but I think it’s a good, uh, way to illustrate that, that idea. And it’s a good time now for us to talk about compound interest, which is interest, growing on interest.

And I have a, a, a. Question to ask you here. So in this hypothetical scenario here, Julie starts saving $50 per month in a 5 29 account when her child is first born. Whereas Jonathan starts saving a hundred dollars per month in a 5 29 account beginning when his child is in the second grade. So that’s me, um, who will have more money saved when his child or her child turns [00:55:00] 18.

So if I can launch this poll question, I’m gonna do it. And I want you to vote on who you think is gonna have more funds, me or Julie. I was gonna say it to me. I’m not gonna lie to you about this.

Okay. So, yeah, I, I, I don’t think I got many of you to fall for it here. Most of you said Julie, 89% of you, and most of you were correct. So Julie’s gonna have more money when she starts saving $50 per month when her child was first born. She’s gonna have using again, uh, a 7% rate of return, $21,000 by the time her child goes to college.

21,536 to be exact. So that’s 10,800 [00:56:00] of what she contributed and about 10,036 of interest earned. So that’s interest, growing on interest. So that’s using time to your advantage, right? Um, so she’s earned almost as much as she’s put in just about, I mean, it’s, it’s, it feels wrong to say almost. It’s, it’s just about now, I didn’t do too bad.

I’ve got $19,798, but if you look at it, I had to put in $13,200 of my funds and earn. Just shy of $6,600 in interest. So I had to work a lot harder to come up to almost as much as Julie, because I started not even particularly late. I mean, seven years old isn’t too late to start, uh, saving. But again, I, I, I still have a good amount saved.

So I don’t wanna say it’s too late if you didn’t start saving when your child was first born. But using time to your advantage, even with a smaller amount, really helps.[00:57:00]

Oh, and I wanna call this out too. Um, this is our college planning tool that we have. And so many of you have this question that I would get all the time from parents, particularly of newborn children who are over the moon about, you know, having a new child and they say, I wanna make sure that college is bought, you know, paid for by the time they go to college.

How much do I need to put away every month to get that? Going and that’s really hard to tell, right? ’cause we don’t know so many things. We don’t know where they’re going. We don’t know how much financial aid they’re going to receive. We don’t know how much, you know, what the market is gonna do, et cetera.

But there is a way that we can sort of help families to estimate, and that’s by using the college planning tool. So if you go to mefa.org, you go to planning for college, and you go to this planning tool and you can start an account, basically that image that you see there is, is a graph. And you can start with the amount that you have.

Say, okay, I have this much saved and I’ve got this much that I’m going to stay save [00:58:00] on a recurring basis. Uh, you can adjust the rate of return on that 7%, 6%, whatever you may, you know, be. And it will calculate by the time your child is ready to go to college, how much money that you will have. You can also start looking at colleges, specific colleges, specific types of colleges, and plug those in and say, you know, by the time at that, my child is gonna be going to this college based on the increase in tuition every year.

This is how much that college is going to cost by that time. So you have what college may cost, and you have what you may have to pay for it. And finally, if you put your income in, it’ll give you some idea of how much financial aid you may be eligible to receive. Right? So if you see in this example here, we have a college cost, a future college cost of $59,995.

That’s for one year, and we’ll talk about that in a little more detail later on. This family is eligible for gift aid. [00:59:00] That’s grants and scholarships. That’s money you don’t have to pay back. So not loans of $7,073. And based on what they’re saving and the rate of return, they’re scheduled to have about $32,000 saved to pay.

So they’re looking at a cost of about 60,000 and resources of about 40,000 on hand to pay for that. So they’re looking at a $20,920 shortfall. And so, you know, then that if you know, if you’re comfortable with that number, great. If you’re not, you know, you either need to, to, to start saving more, start looking at less expensive colleges, start applying for scholarships, which you can do through that site as well.

And incidentally, you can start applying for scholarships very young. So grade school, you can start applying for college scholarships in some cases. So it’s not too, uh, too early to start doing that in all likelihood. Um, and there’s all sorts of different things that you can do on this particular tool.

So this is just the little [01:00:00] bit of it, but to me it’s kind of the heart of it. So if you wanna know what should my goal be and how. Am I doing getting to that goal? You can look at the college planning tool. So, uh, again here, 89% of respondents in that CSI study believe the value of a college education is worth the cost.

So there is a cost to it, of course, but let’s not forget that there are, are benefits and premiums that you get for that. Oh, one more thing On the, um, you know, getting family and friends involved, there are gift cards available, uh, that you can buy. Uh, there is a gift of college car that’s branded with MEFA and with the e fund that you can purchase at CVS stores throughout Massachusetts.

Uh, you can go from any denomination up to $200. And have a tangible gift to give somebody towards saving for college. You can go in there 5 29, which, you know, can be used for college, but can also be used for those other expenses, including repaying student loans. [01:01:00] Um, so that’s important. I know we’re running late here, so I wanna try to finish up as quickly as I can on how families pay for post-secondary education.

Again, the most common question I’ve received over my time from MEFA, it’s very common to hear stories that now cost 90,000, a hundred thousand dollars to go to this particular college. And so you get the idea that that’s how much college costs, right? Or it costs way too much, even if it’s not that. But what I wanna tell you is that there are different types of colleges that cost different amounts.

So those numbers that we hear about every summer basically are the most expensive types of college and probably the most expensive college in your area. So, uh, this information comes. The college board trends in college pricing. The college board does the SAT and the AP courses, but they also do this type of research.

So the average annual cost for one year of a four year private college nationally is about $62,990 per year. So that includes tuition fees, [01:02:00] um, food and housing, book supplies, transportation, all the costs, uh, put together. So that is a national average for one year. If you’re in Massachusetts, if you’re in the New England area, we’re probably higher than that.

Um, but that is the national average and that includes everything. So again, you may not be paying room and board. You may be really depends, but this is everything altogether. So that’s one type and it’s the most expensive type. Then we have public colleges or universities which are less expensive.

Certainly if you are. Attending a public college in the state that you live in. So for an in-state resident going to a public college or university in Massachusetts, you know, think about UMass Bridgewater State, Framingham State, those types of colleges. The average cost is about 29,910. For in-state residents, if you’re going to an OUTTA state public college, it’s gonna be more than that.

So about [01:03:00] $49,000. Um, so still a little bit less, but you’re gonna lose that in-state discount Vocational training programs have talked about as being, you know, 5 29 eligible in certain cases. So, uh, 15,000, 70. For tuition only. And that comes from best colleges.com. How much does trade school cost? So that’s for the entire education as well.

Um, actually, I’m not sure if that’s true, but, uh, 15,070 for tuition only. It’s very difficult to tell for vocational training programs because they are so varied. Uh, and there’s all different types, many of which are at the, are offered at the lowest cost type. On, on the list here, which are the two year public community colleges.

This says 20,570 per year. But, uh, I, I believe that includes room and board. And most two year public community colleges don’t have those costs associated with it. So I think you can, you can lop off about half of [01:04:00] that. In Massachusetts, there are no, um. C community colleges that are not commuter colleges.

So it’s about $10,000. Actually in Massachusetts there’s free community college and that is something that is, you know, gaining popularity. And again, lots of different states and lots, lots of different cities. For example, Boston had free community college before Massachusetts does, but in Massachusetts it’s free.

So you know, the thing I want you to take from this is that it’s not as simple as college costs $90,000 a year or $70,000 a year, or $60,000 a year even. There’s all sorts of different types of colleges with different price tags associated with it. And the second big thing is this is all before financial aid has been granted.

So this is what’s called the sticker price. And the fact is that most families are going to be eligible for some level of financial aid. The high cost of college, so to speak, is something that is. Generally very well [01:05:00] understood or no, what isn’t as well understood is the amount of financial aid that’s granted every year.

So in the most recent year that we have data for $190 billion per year, and that’s about where things typically stand. Um, aid again, comes in two varieties, as I discussed before, merit based meaning scholarships, uh, or something that is given in recognition of student achievement and need, which is based on the family’s financial eligibility of which your savings don’t have an outsized impact of very minimal impact.

Uh, but there’s a lot of money that’s granted every year in terms of financial aid, and the fact is that most families are gonna qualify for some of it. So again, that full cost of co tuition times four isn’t really necessarily the target that you should have in mind. So when it comes to people paying for college, how do they pay for college?

First of all, financial aid. Once financial aid has been granted, there’s only three ways to pay. Past income, meaning your savings, present income, meaning the [01:06:00] money you’re earning while your student is in college, and colleges do offer payment plans that you can get on. And, you know, for a, a small fee, ev, interest free monthly payment plan you get on every dollar that you’re paying every month goes against tuition.

It’s worth it to stretch what you can, maximize your aid, maximize your savings, and maximize. Your payment plan if you have one, because what’s left after all of that is your future income or student loans. And this is important, this is a big important point to make at the end of this, which is that since we talk about student loans, people tend to think that students can borrow whatever they might need in their own name as long as they, you know, any amount basically, as long as they promise to pay it back after college.

And that’s just not true. I mean, most of the time students need a co-applicant to be approved. There are federal student loans for students to take only, but they can only take, you know, anywhere from 5,500 to 7,500 per year in that. And that’s part of the financial aid package already. So anything after that, [01:07:00] if you’re borrowing, looking to borrow 10,000 or 15,000, whatever it might be.

That that loan will have to be based on. The approval of that will have to be based on credit, and most students don’t have the credit or the income necessary to be approved. Probably need a parent or somebody else to act as a co-applicant. And on that loan, a co-applicant would be equally responsible with the student.

So you would be on the hook for that payment amount, which is why it is worth it to pay everything you can out of pocket before you start to borrow. Now we have a slide about using your U Fund savings. If you have, uh, 5 29. If you have a U fund, you can contact fidelity. To get those distributions out, you can, if you have the mobile app or online account access, you can direct the funds straight out of your account that way.

That’s what I did. Um, we used our funds again to pay through for K through 12 and just directed funds out of that. It was a very easy to do electronically. [01:08:00] Distributions can be made directly to a college or to a school, or they can be made to the owner. And I’ll say, you know, we, we directed those funds out into our account and it, the transfer itself took about two days.

So that was the kind of timeframe that we were looking at. If you do have the funds cashed out to yourself, keep a record of how you spent those funds. ’cause you wanna be able to prove to the IRS should you get audited that you use these funds for a qualified educational expense. Um, any distributions will trigger a 10 99 Q which is, you know, just your, your tax form of what you took out of your account.

And again, should you get audited, you need to be able to say. This is how I use these funds and I use them for a qualified educational expense. Uh, but payments can be made again, electronically or via pay for check, um, whether that’s to, uh, an owner or to an institution. So next steps you can [01:09:00] start saving, uh, in a 5 29.

Or if you are, continue get the word out to family and friends. Maybe look at how much you’re contributing on a monthly basis. See if you can bump it up if you’re able to do so. Talking to your child about college and what they plan to do is really great. Um, not just what they plan to do, but have a cost conversation, right?

Um, sometimes people make emotional choices ’cause they don’t have that information about cost and they don’t really know how much they’re gonna be paying back. And it always more, more conversation is good around that topic. You can go to MEFA.org and, and use our online tools to learn more about. Saving for college, how you’re doing, saving for college, using that, saving for college calculator, but also, uh, other calculators like calculating your SAI your student aid index.

You can sign up for our webinars or our emails. And then here I’ll just leave you with our social media information if you wanted to follow us for posting stuff all the time. Um, [01:10:00] including scholarships. So if, if you’re interested in scholarships, you know, we’re, we’re contacted all the time by people offering them, uh, asking us to promote them.

So, uh, give us a follow that way. And then if there are any other questions, I’ll be happy to answer.

Apelila Joseph: Uh, yes. So we have one question in the chat, and I’m not sure, um, Jonathan, if you can speak to this or maybe just point this person in a direction where they can find some of this information. Mm-hmm. So what’s the average percentage earned from 5 29 given the numbers over the past 10 years?

Um,

Jonathan Hughes: oh, I, yeah, I don’t know that information. Um, I think. Um, there may be some sort of industry-wide survey information about that. Of course, you know, there are, as, as we said, different offers, different program managers and different investment choices. So certain, certain investors and investment companies may [01:11:00] outperform others and there are certainly rankings, um, you know, of states and their, and their performances.

Uh, but industry-wide, um, I have a thought, but I’m not sure, uh, as far as the resource is concerned, uh, where, where I could potentially point you. So maybe we can talk afterwards.

Apelila Joseph: Great. Thank you.

Jonathan Hughes: Yeah,

Apelila Joseph: and that takes care of all the, the current questions.

Jonathan Hughes: All right, well, thank you all very much and uh, good luck to you and if you have any other questions about anything relating to.

Planning, saving, and paying for college and career readiness, definitely give us a call, uh, or an email and, um, that’s what we’re here for. So thank you. Thank you, Oliva. Thanks everybody.

Apelila Joseph: Thanks Jonathan.

Jonathan Hughes: Good night.