Should You Open a U.Plan or U.Fund Account?

One of the most common questions we get from families is if they should save in the U.Plan Prepaid Tuition Program or the U.Fund College Investing Plan. Both plans have valuable benefits, so families can't go wrong saving in either one. But since the two programs have different advantages, a good option for many families is to open an account in both! Here is a breakdown of the two programs and their benefits:

U.Fund 529 College Investing Plan

The U.Fund is the Massachusetts 529 plan. The account owner contributes money into the fund, and then this contribution is invested by Fidelity Investments in the market. The money invested grows tax-deferred and withdrawals are tax-free when used for qualified expenses.

A major benefit of the U.Fund is its flexibility. Qualified expenses include tuition, fees, food and housing, books, supplies, and equipment. The U.Fund can also be used at any accredited college in the country and even some international colleges, including graduate schools. You can use the U.Fund at accredited vocational and career training schools as well. Federal legislation has also expanded qualified uses to include up to $10,000 in annual K-12 tuition, apprenticeship training, and repaying student loans (up to $10,000 in total).

U.Plan Prepaid Tuition Program

If the U.Fund offers flexibility, the U.Plan offers peace of mind. The U.Plan is the Massachusetts Prepaid Tuition Plan, and it allows you to prepay up to 100% of tuition and mandatory fees at each participating U.Plan college and university (there are over 70). This provides a safeguard against the increase in college tuition.

The money contributed to the U.Plan is not invested in the market, but rather in bonds backed by the full faith and credit of the Commonwealth of Massachusetts. Your investment buys a percentage, based on how much you save, of the current year's tuition at each participating college and university. The value of that percentage grows at the same rate as the tuition increases at each school.

Benefits for Saving in Both the U.Plan and the U.Fund

Choosing to invest in both plans will provide you with options. If your child decides to go to a U.Plan school in Massachusetts, then locking in the cost of tuition and beating out inflation costs is a huge benefit with the U.Plan. If your child doesn't end up attending a participating school, you can transfer the funds to another child in your family or you can cash out and receive back what you put in plus interest, with no penalty.

The flexibility of the U.Fund allows funds to be used for school anywhere, not just in Massachusetts. But it can also be used in tandem with the U.Plan if your child attends a participating school for costs that are not covered by the prepaid tuition program, such as books, supplies, housing, and more.

As your child's personality develops, you may be led to make certain investment choices. If your child has a desire to stay closer to home, there are so many great schools in Massachusetts to choose from and investing in the U.Plan would be wise and likely advantageous. If your child is set on a pursuing a certain program at a school in another state, then investing in the U.Fund makes sense. Make the best decision you can based on possibilities and pivot when necessary.

No matter when or how you start saving, it can add up to more than you anticipate. More important than making the "right decision" is just to start something, and to start as early as possible. Review your savings plan every year and adjust when needed.