College Savings Strategies for Massachusetts Families: What You Need to Know

Massachusetts offers state income tax deduction for contributions to its two official plans (the U.Fund and U.Plan), something not offered in every state. Massachusetts is also home to a dense concentration of both top-tier private institutions and strong in-state public universities, which means families here may be weighing a broader range of education paths than in other parts of the country. That diversity, along with high regional living costs, makes it especially important to have a college savings strategy that’s not only tax-efficient but also flexible and aligned with your long-term financial goals.

Some key factors to consider as a Massachusetts resident:

• Do you expect your child to stay in-state for college? The U.Plan may help you lock in tuition at current rates.

• Would you benefit from the MA state tax deduction? You can deduct up to $1,000 (individual) or $2,000 (joint) annually for contributions to the U.Fund or U.Plan.

• Are you also saving for K–12 tuition or looking at private schools? You might need to layer multiple account types (e.g., 529 + Coverdell).

• Do you want flexibility for out-of-state or private college options? Then you may want to combine the U.Fund or a Private College 529 with other savings vehicles.

The right financial advisor can help you:

• Maximize state and federal tax benefits, including Massachusetts deductions and coordinated use of 529s and Roth IRAs.

• Structure gifts from grandparents or other family members to avoid triggering gift tax.

• Use investment strategies like tax-loss harvesting to free up funds for education without incurring heavy tax liabilities.

• Position assets to minimize financial aid impact, particularly in the years leading up to college.

• Balance education savings with retirement planning, avoiding overfunding college at the expense of future financial security.
  

1. 529 College Savings Plan (U.Fund in MA)

The U.Fund is Massachusetts’s version of a traditional 529 savings plan, offering tax-advantaged growth and flexible use across a wide range of education expenses.

• Tax-free growth and withdrawals for qualified expenses (college, student loans, K–12 tuition up to $10K/year)

• MA state tax deduction: Up to $1,000 per individual / $2,000 per couple

• No income or age restrictions; high contribution limits

Considerations:

• Investment options limited to plan portfolios

• Subject to market risk

• Withdrawals for non-qualified use are taxed + 10% penalty

2. U.Plan Prepaid Tuition Program

Massachusetts’s prepaid tuition option allows families to lock in current tuition rates at over 70 participating in-state colleges and universities.

• Locks in today’s tuition rates at MA schools

• Eligible for the same state tax deduction as the U.Fund

• No investment risk

Considerations:

• Only applies to tuition—not room, board, or fees

• Limited to participating MA schools

• Less flexible if the student chooses an out-of-state or non-participating school

 3. Private College 529 Plan

A national prepaid tuition plan specifically for private colleges and universities, not state-sponsored but managed by a nonprofit consortium of schools.

• Lock in today’s tuition rates at nearly 300 participating private colleges

• No fees or income restrictions

• Contributions grow tax-free and are guaranteed by the colleges themselves

Considerations:

• Funds must be used for tuition only at participating private schools

• If the student doesn’t attend a participating college, only contributions (not growth) are refunded

• Does not cover room, board, books, or non-participating schools

4. Coverdell Education Savings Account (ESA)

A tax-advantaged account that covers a broader range of K–12 and college expenses, with more investment flexibility.

• Can be used for tutoring, supplies, and technology for K–12

• Allows self-directed investing

• Tax-free growth and withdrawals for qualified use

Considerations:

• Annual contribution limit of $2,000 per beneficiary

• Income eligibility restrictions apply

• Must use funds by age 30

 5. Custodial Accounts (UGMA/UTMA)

Flexible, non-restricted accounts held in the child’s name.

• No contribution limits

• Can be used for any purpose that benefits the child

• Offers full investment flexibility

Considerations:

• No tax-free growth

• Considered student assets—can negatively affect financial aid

• Becomes the child’s legal property at age 18 or 21

 6. Roth IRA (Used for Education)

While primarily a retirement vehicle, Roth IRAs allow penalty-free withdrawals for qualified higher education expenses.

• Contributions can be withdrawn anytime

• Earnings can be withdrawn penalty-free for education

• Doesn't count against FAFSA if held by the parent

Considerations:

• Annual contribution limits apply ($7,000 in 2025)

• Prioritizing education withdrawals may impact retirement

• Not ideal as a primary education savings vehicle

7. Standard Brokerage or Savings Account

A simple, unrestricted account used by some families for flexibility and control.

• No usage restrictions

• No contribution or income limits

• Full investment freedom

Considerations:

• No tax benefits

• Subject to capital gains taxes

• Requires discipline to earmark for education