It's not just an education savings account
The Massachusetts 529 plan, MEFA's U.Fund College Investing Plan, is a tax-advantaged investment plan, professionally managed by Fidelity, to help reach your child's educational dreams.
529 plan FAQs
Find the answers to your questions related to 529 plans and education savings.
What is a 529 plan?
529 plans are flexible, tax-advantaged accounts designed specifically for education savings. They are offered by individual states, but you do not have to be a resident of a particular state to invest in that state's plan. Withdrawals used for qualified education expenses are free from federal income taxes and, in many cases, state taxes.
How do I choose a 529 plan?
First, there are some features that are common to all state-sponsored 529 plans, including:
- Any earnings grow federal income tax-deferred
- When you withdraw money for qualified education expenses, those withdrawals are federal income tax-free
- You choose how the funds are used; 529 plan distributions can be used for tuition, books, room and board, and any other qualified higher education expense at most accredited colleges and universities in the U.S. and eligible foreign schools. Additionally, $10,000 per year can be applied toward tuition expenses for elementary, middle, and high schools (private, public, or religious). Although the money may come from multiple 529 accounts, it will be aggregated on a per beneficiary basis, and any distribution amount in excess of $10,000 will be subject to income and a 10% federal penalty tax.
When choosing a 529 plan, Fidelity suggests that families consider the following:
- In-state tax benefits – such as state tax deductions
- Investment options – most 529 plans offer a number of investment options, including Age-Based Portfolios, which invest savings based on a beneficiary's age and the number of years until he or she will be starting college; some plan managers offer portfolios that consist solely of funds they manage themselves, while others offer access to portfolios managed by multiple fund companies
- Fees and expenses – including account management fees and management fees on underlying portfolios
- Plan performance – when available, review 1-, 3-, 5-, and 10-year performance figures
- Investment management – what financial services company is managing the plan and what types of services does the company offer?
If my state offers a tax deduction, should I just invest in my own state's plan?
Investors should first determine whether their own state's plan offers significant tax benefits, such as a state income tax deduction. If it does, they should consider investing in that plan. However, it's possible that a state plan may offer tax incentives, but have a record of poor performance or charge high fees that could offset the tax benefits. Fidelity suggests that investors consider a range of additional factors, including a plan's investment manager, investment options, plan performance, and underlying fees and expenses when choosing a plan.
I have a Uniform Gifts to Minors account or Uniform Transfers to Minors (UGMA/UTMA) account. Can I transfer those assets into a 529 plan account?
Yes, however, you must first liquidate the assets in the UGMA/UTMA account and pay any applicable taxes. Investments may be subject to fees and expenses. After liquidation, you can invest the cash in an UGMA/UTMA (Custodial) 529 plan account. An UGMA/UTMA 529 plan account will be subject to the rules for both types of accounts, including applicable UGMA/UTMA state statutes. You cannot change the beneficiary of an UGMA/UTMA 529 plan account. You may want to consult a tax professional regarding your specific tax situation.
If I have more than one child, should I have more than one account?
You will likely want separate 529 plan accounts for each child. Each 529 plan account can have only one beneficiary. Many investors who are saving for college choose to take advantage of the Age-Based Portfolio Strategy for their accounts, which manages the account based on the age of the child. For this reason, you may want separate accounts for children of different ages.
What are the fees and expenses?
- There is no annual account fee associated with any of the Fidelity-managed 529 plan accounts
- There is a program management fee that covers the cost of trust administration services, such as recordkeeping, statements, and customer service
- In addition, each of the underlying mutual funds in which a portfolio's assets are invested also charges investment management fees and other expenses; the plans do not invest in any mutual fund with a sales load — underlying mutual fund fees vary by portfolio
- Please see the Massachusetts U.Fund College Investing Plan Fact Kit and Application for more details on fees and expenses
I have an account in another state's 529 plan. Can I transfer my account to one of the Fidelity-managed 529 plans?
Yes, you can. This type of transfer is called a rollover. Under federal tax laws you are allowed to roll over a 529 plan account for each beneficiary once during any 12-month period. To roll over an account, download the Fidelity College Investing Plan Rollover Form (PDF) or call us at 800-544-1914.
What happens if my child doesn't attend college or I otherwise have money left in the account?
529 plans offer significant flexibility should the designated beneficiary (student) decide not to attend college, or if the funds are not used for other qualified educational expenses. You can take out the money as a non-qualified withdrawal, but any earnings on non-qualified distributions are subject to federal income taxes at the recipient's rate as well as a 10% federal penalty. You can also change the beneficiary on your 529 plan account to eligible family members of the original beneficiary without incurring federal income taxes and the 10% federal penalty. A family member is a person who has one of the following relationships with the original beneficiary: (1) son or daughter; (2) stepson or stepdaughter; (3) brother, sister, stepbrother, or stepsister; (4) father, mother, or an ancestor of either; (5) stepfather or stepmother; (6) son or daughter of a brother or sister; (7) brother or sister of a father or mother; (8) son or daughter-in-law, father or mother-in-law, brother or sister-in-law; (9) spouses of the individuals listed in (1)–(8) or the spouse of the beneficiary; and (10) any first cousin.
I remember hearing that the tax-free status of 529 plans would be ending soon. Is that true?
Contributions made to 529 plans will continue to grow federal income tax-deferred. Distributions for higher education expenses will be federal income tax-free and, in some cases, state income tax-free.
How do I choose my investments?1
Fidelity offers a wide range of investment options for your 529 plan account.
To help you determine which option may be best for you, consider these 2 questions:
- Do you want a portfolio that's managed for you, automatically becoming more conservatively invested as your child nears college age?
- Do you want to choose your own portfolios?
Age-Based Strategy: Fidelity offers 3 age-based investment options that adjust their asset allocations automatically, becoming more conservative as the beneficiary nears college age. These options provide access to Fidelity Funds, Multi-Firm Funds, and Fidelity Index Funds.
Fidelity Funds: These are designed to generate returns that attempt to beat a major market index over the long term. These portfolios invest solely in Fidelity Funds that are managed by dedicated portfolio managers who are making investment decisions backed by Fidelity's proprietary investment research.
Multi-Firm Funds: Like our Fidelity Fund Age-Based Portfolios, these are designed to generate returns that attempt to beat a major market index over the long term. While the funds themselves are managed by Fidelity and other firms, the way the investments are spread among different funds is managed by dedicated portfolio managers at Fidelity. This option provides an opportunity to diversify your funds across multiple fund companies.
Fidelity may use its proprietary asset allocation research to make active asset allocation decisions in the Age-Based Portfolios that invest in Fidelity Funds and Multi-Firm Funds. Such active asset allocation decisions may better enable the portfolios to take advantage of short- to medium-term opportunities and market conditions. Although an active asset allocation strategy is designed to add value, there is no guarantee any value will be added, and the strategy may result in losses to the portfolios. Please review a 529 plan Fact Kit for more information on portfolio asset allocation.
Fidelity Index Funds: These are designed to generate returns that closely mirror the performance of a major market index over the long term. These portfolios invest solely in Fidelity Index Funds, and are able to keep transaction costs and other expenses low because they are passively managed. This means that the securities currently held in the respective index determine your investments.
Custom Strategy: If you want to build your own investment mix, choose from 4 investment portfolios offered by Fidelity: Static, Individual Fund, Age-Based, and Bank Deposit.
Static Portfolios invest in several different funds managed by Fidelity and have an asset mix that doesn't change over time. You may choose between portfolios invested in Fidelity Funds or Fidelity Index Funds.
Individual Fund Portfolios invest in a single Fidelity Fund or Fidelity Index portfolio. Options include a mix of equity, fixed income, money market, and bank deposit portfolios.
Age-Based Portfolios are managed according to the approximate year the beneficiary is projected to enter college. These portfolios take a more aggressive approach during the early years of saving for college, and become more conservative over time as the need to pay for qualified higher education expenses approaches.
The Bank Deposit Portfolio2 seeks preservation of principal and is designed for beneficiaries of any age. This portfolio is composed exclusively of a deposit in an FDIC-insured, interest-bearing account.3
See investment options for more information.
1. The IRS does not allow participants to have direct or indirect control over the investments in a 529 account.
2. Although the underlying deposits are eligible for FDIC insurance, subject to applicable federal deposit insurance limits, the units of the Bank Deposit Portfolio are not insured or guaranteed by the FDIC or any other government agency. You are responsible for monitoring the total amount of your assets on deposit at the depository bank, including amounts held directly at the depository bank. All such deposits held in the same ownership capacity at the depository bank are subject to aggregation and to the current FDIC insurance coverage limitation of $250,000. Please see your 529 Fact Kit for more details.
3. Bank Deposit Portfolio is not an eligible investment selection for Trust Account Registrations.
Can I change how my account is invested?
Yes, new deposits can be made into any of the portfolios available in the Fidelity-managed 529 plans. Many customers establish standing instructions, such as making all contributions to the same portfolios each period, to avoid providing new instructions with every deposit.
You may reallocate previously invested monies (contributions and earnings) twice each calendar year and upon a change to the beneficiary. See investment options for more information.
Use the 529 College Plan Investment Form (PDF) to change instructions on current and future investments.
Can I pick the investments for my account?
You choose the portfolios, but not the individual funds. The IRS does not allow a participant to have direct or indirect control over the investments in a 529 account. The 529 portfolios are invested in a combination of mutual funds. To see a list of the underlying mutual funds that make up each portfolio, visit the Plan Performance pages.
Who are the Fidelity-managed 529 plan portfolio managers?
Andrew Dierdorf and Brett Sumsion are the co-managers of the UNIQUE Plan, the Fidelity Arizona Plan, the U.Fund Plan, and the Delaware Plan Portfolios.
Andrew Dierdorf is a portfolio manager in the Global Asset Allocation (GAA) group at Fidelity Investments. In this role, Mr. Dierdorf is responsible for co-managing Fidelity's U.S. and Canadian target date portfolios, including Fidelity Freedom Funds, Pyramis Lifecycle Portfolios, Fidelity ClearPath Retirement Portfolios, Pyramis ClearPath Lifecycle Solutions, Fidelity Income Replacement Funds, and Fidelity-managed 529 College Savings Plans. He is also a co-manager for the Fidelity Four-in-One Index Fund.
Previously, Mr. Dierdorf co-managed Fidelity Global Strategies Fund and Fidelity Tactical Strategies Fund until May 2014. Prior to joining Fidelity in his current position in 2004, Mr. Dierdorf worked as an actuary at CIGNA from 1997 to 2004, and held various actuarial roles at Provident Mutual Life Insurance Company from 1994 to 1997. He has been in the financial services industry since 1993.
Mr. Dierdorf earned his bachelor of science degree in statistics from the University of Delaware, where he also minored in economics. He is a Chartered Financial Analyst (CFA) charterholder, as well as a Fellow of the Society of Actuaries (FSA), Chartered Market Technician (CMT), and a Member of the American Academy of Actuaries (MAAA).
Brett Sumsion is a portfolio manager on the Target Date team within the Global Asset Allocation (GAA) group at Fidelity Investments. In this role, Mr. Sumsion is responsible for co-managing Fidelity's U.S. and Canadian target date portfolios, including Fidelity Freedom Funds, Pyramis Lifecycle portfolios, Fidelity ClearPath Retirement Portfolios, Pyramis ClearPath Lifecycle Solutions, Fidelity Income Replacement Funds, and Fidelity-managed 529 College Savings Plans.
Prior to joining Fidelity in 2014, Mr. Sumsion held various positions at DuPont Capital Management, Inc., including that of managing director of asset allocation from 2008 to 2013 and portfolio manager from 2005 to 2008. Previously, Mr. Sumsion worked at Strategis Financial Group, Inc., where he was chief executive officer from 2004 to 2005 and vice president of asset allocation research from 2001 to 2004. He has been in the investments industry since 2001.
Mr. Sumsion earned his bachelor of arts degree in economics from Brigham Young University and his master of business administration degree in finance from The Wharton School at the University of Pennsylvania. He is also a Chartered Financial Analyst (CFA) charterholder.
Do I have to use the money at a state school?
No, you can use your 529 plan account assets at eligible colleges and universities in the United States and eligible foreign institutions.
What college expenses can I use the money for?
Money withdrawn from the 529 plan account can be used for a wide range of qualified higher education expenses, such as room and board, tuition, books, and computer equipment. Refer to your enrollment kit for a full list of expenses covered by your state's plan.
Do I have to use the money for college expenses only?
No, beginning in 2018, $10,000 per year can be applied toward tuition expenses for elementary, middle, and high schools (private, public, or religious). Although the money may come from multiple 529 accounts, it will be aggregated on a per beneficiary basis, and any distribution amount in excess of $10,000 will be subject to income and a 10% federal penalty tax.
How and when can I take distributions from the account?
You can always withdraw money from your 529 plan account. However, non-qualified withdrawals are subject to federal income tax and a 10% federal penalty tax. There may also be state or local income tax, interest and dividends tax, or the equivalent. Qualified withdrawals include money used to pay for room and board, tuition, and books. You may NOT take loans against your 529 plan account.
Distributions used for primary or secondary public, private, or religious educational institutions may be used only for tuition expenses.
You have several ways to withdraw money (take a distribution) from your Fidelity-managed 529 plan account:
- Transfer money from your 529 plan online to another Fidelity account or to an outside bank account. We have an easy-to-use transfer tool that can help. Once the transfer is made from the 529 account, use your preferred payment method to pay your qualified higher education expenses directly with the college or university. Start a transferLog In Required
- Pay college bills online by enrolling now in Fidelity BillPay® for 529 accounts
- Complete the College Investing Plan Distribution form (PDF)
- Call a Fidelity representative at 800-544-1914
For money sent to the beneficiary or directly to his/her school, a Form 1099-Q will go to the beneficiary, who will be considered the recipient of the money for tax purposes. For all other withdrawals, the participant will be considered to have received the money and will be sent a Form 1099-Q. Additional documentation (college invoice, statement, receipts) may be required by the IRS to verify that such payments are qualified.
How can I take a distribution from specific portfolios in my 529 account?
If you are invested in multiple portfolios and you would like to take a distribution from a specific portfolio in your 529 account you will need to complete the College Investing Plan Distribution form (PDF) or call a college planning representative at 800-544-1914.
Please be aware that withdrawing funds through the online transfer tool or with Fidelity BillPay results in a pro-rata sale across the portfolios you hold in the account. Fidelity BillPay is not available to pay tuition expenses at primary or secondary public, private, or religious educational institutions. For information on other distribution methods, visit Take a Distribution From Your 529 Account.
What if my child earns a scholarship?
You can withdraw the amount of the scholarship award from your 529 plan account without penalty; federal and state income taxes on the earnings still apply.
Will investing in a 529 plan affect eligibility for financial aid?
529 assets may have a relatively small effect on federal financial aid eligibility because they are considered assets of the parent (participant) in the Expected Family Contribution (EFC). Conversely, accounts that are considered assets of the child (beneficiary), such as an UGMA/UTMA account, tend to have a greater effect on federal financial aid eligibility in the EFC calculation. See financial aid planning for more information.
What is Fidelity BillPay® for 529 accounts?
Fidelity BillPay® for 529 accounts is a free online service that allows you to make single and recurring payments to colleges, tuition payment services, the account owner, or the beneficiary. To learn more, view the Fidelity BillPay for 529 Accounts demo. For questions regarding Fidelity BillPay for 529 accounts, please contact a Fidelity representative at 800-544-1914. Fidelity BillPay is not available to pay tuition expenses at primary or secondary public, private, or religious educational institutions. For information on other distribution methods, visit Take a Distribution From Your 529 Account.
Enroll now in Fidelity BillPay for 529 accounts.
Note: Fidelity BillPay for 529 accounts is not intended for custodial UGMA/UTMA use.
What do I need to know before paying college bills using Fidelity BillPay® for 529 accounts?
To facilitate bill payments to colleges, please include the following information when setting up the recipient of funds:
- The student ID or student account number from your tuition invoice
- The correct payment address, including any specific area or department name required by the school
When making your payment, bear in mind that the total market value of your account is based on the prior business day's market value of the portfolios in your 529 account. This market value may fluctuate between the time you enter your bill payment request and when the money is deducted from your account. If the payment request is not available due to a decrease in market value, you will be notified that your transaction was not accepted and you will need to resubmit your request. If you need to withdraw your entire account balance, please call a representative at 800-544-1914. Note: Payments will be deducted from your account on the withdrawal date.
For 529 accounts invested in multiple portfolios, the amount requested through Fidelity BillPay® for 529 accounts will be withdrawn from each portfolio held in your designated 529 account on a pro-rated basis. If you prefer to provide direction on the specific portfolio from which to deduct the requested amount, please call a representative at 800-544-1914 or fill out the College Investing Plan Distribution form (PDF).
How much time will it take for the school to receive my payment?
Please allow for a minimum of two weeks since it may take the school a period of a few days to process the check after it has been received.
Units of the portfolios are municipal securities and may be subject to market volatility and fluctuation.
You could lose money by investing in this 529 money market investment option. Although the money market fund in which your investment option invests (the "underlying fund") seeks to preserve its value at $1.00 per share, the underlying fund cannot guarantee it will do so. An investment in this 529 money market investment option is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The underlying fund's sponsor has no legal obligation to provide financial support to the underlying fund, and you should not expect that the sponsor will provide financial support to the underlying fund at any time.
The U.Fund® College Investing Plan is offered by MEFA and managed by Fidelity Investments. If you or the designated beneficiary is not a Massachusetts resident, you may want to consider, before investing, whether your state or the beneficiary's home state offers its residents a plan with alternate state tax advantages or other state benefits such as financial aid, scholarship funds and protection from creditors.