Which 529 Plan Should Massachusetts Residents Choose?
Massachusetts has one 529 college savings plan, MEFA’s U. Fund, which is managed by Fidelity Investments and available to residents of any state. Although Massachusetts residents can invest in almost any state’s 529 plan, they may be eligible for a state income tax deduction and a matching grant if they use MEFA’s U. Fund.
MEFA’s U. Fund is a highly-rated 529 plan that offers low-fees, strong investment performance and a variety of investment portfolios designed to help a beneficiary save for college. Massachusetts residents who invest in MEFA’s U. Fund can take advantage of Fidelity’s 529 plan gifting platform and earn credit card rewards that can be put toward college savings.
How to enroll in MEFA’s U. Fund
The MEFA U. Fund is a direct-sold 529 plan that can be opened by completing an application online. The 529 plan account owner must provide their Social Security Number (SSN), or Individual Taxpayer Identification Number (ITIN), date of birth, mailing address, telephone number and email address, and the beneficiary’s name, data of birth and SSN or ITIN.
Massachusetts state tax benefits
Like many other states, Massachusetts offers a state income tax deduction for contributions to the state’s 529 plan. Contributions of up to $1,000 ($2,000 if married filing jointly) to a Massachusetts 529 plan are deductible from state taxable income. The state income tax deduction is available only to Massachusetts residents.
Qualified distributions from a Massachusetts 529 plan or an out-of-state 529 plan are not subject to Massachusetts state income tax.
MEFA’s U. Fund offers competitive fees, with total asset-based expense ratios ranging from 0.11% to 1.13%, based on selected investment options. According to Savingforcollege.com’s 529 fee study, the total fees on $10,000 investment over 10 years would be between $141 and $1,371.
Professionally managed investment portfolios
The MEFA U. Fund 529 plan is managed by Fidelity Investments, one of the largest and most well-known asset managers in the world. Families can choose a 529 plan investment option based on their specific needs and college savings goals. The MEFA U. Fund offers 15 investment portfolios, which include:
- Age-based portfolios that automatically reduce risk as the beneficiary gets closer to college. Families may choose an age-based portfolio invested in Fidelity Series actively managed funds, Fidelity Series index funds or a Fidelity Blend option that includes both active and index funds.
- Static portfolios which do not automatically adjust. Options include aggressive, moderate and conservative portfolios with actively managed and index fund versions, as well as five individual portfolios. Investors can mix and match these portfolios to create their own asset allocation.
- An FDIC-insured Bank Deposit Portfolio that aims to protect the principal investment.
Strong long-term performance
MEFA’s U. Fund is a top-performing 529 plan that ranked 9th in Savingforcollege.com’s quarterly 529 plan performance rankings for the 10-year period ended June 30, 2019. The 529 plan received a rating of 4.5 out of 5 caps for residents in Savingforcollege.com’s 5-Cap Ratings as of June 30, 2019, based on the following factors:
Overall 5-Cap Rating
Keep in mind, however that this data represents historical performance, which doesn’t necessarily indicate future results.
529 plan grant for Massachusetts residents
Beginning January 1, 2020, all babies born in Massachusetts or adopted by Massachusetts residents are eligible for a $50 seed contribution to a MEFA U. Fund account. Families must enroll in Massachusetts’s BabySteps Saving Plan before the beneficiary’s first birthday or within one year of adoption to qualify.
529 plan gifting options
Massachusetts families who invest in the MEFA U. Fund can take advantage of Fidelity’s unique 529 gifting platform. 529 plan account owners are able to set up a personalized College Gifting page to share with friends and family. The dashboard tracks gifts made to the account and lists the name of each gift giver and the amount that they contributed.
Credit card rewards
The Fidelity Investments 529 College Rewards Visa Signature Card allows families to earn cash back rewards for college. Cardholders receive 2% cash back on all purchases that can be automatically contributed to a Fidelity 529 Plan, including the MEFA U. Fund. The contribution will grow on a tax-deferred basis and can be withdrawn completely tax-free to pay for college. The credit card has no annual fee and rewards do not expire.
A good place to start