If you’re a Florida resident, you may have noticed an increase in U-Haul trailers and packed SUV’s on the area highways. Last week I saw a variety of vehicles dressed out in Gator, Seminole, Bulls, and Golden Knight colors. It’s back to school time for college students and their parents . As move in day arrives, students look cheerily towards the future year while their parents stress about paying for the experience. Happily, some parents planned well in advance for this time by using some tax advantaged Florida pre-paid or private 529 educational savings plans. And if they are lucky enough to have a daughter or son who qualified for a Bright Futures Scholarship… Happy Day! But how do you manage the withdrawals from each of these accounts? Which accounts should you draw down first?
Florida Prepaid Plan – This plan is backed by the state of Florida and allows families to lock in the future cost of college tuition and other fees at a Florida College or State University by paying a monthly or lump sum. Contracts can apply to tuition only or may include optional features such as dormitory housing. If your student chooses to go to an out of state school or a private college, the plan will pay the same amount as it would have paid for a Florida State College or University.
Bright Futures Scholarship Program – Students must apply for the scholarship by submitting a Florida Financial Aid Application no later than August 31 st following High School graduation. There are two levels of scholarships: Florida Academic Scholars and Florida Medallion Scholars. Academic Scholars has more rigorous requirements and will pay a higher level of tuition and educational expenses. This program is governed by Florida statutes and eligibility requirements are subject to change with each legislative session.[1]
Private 529 Savings Plans– A 529 Plan is a savings plan that offers tax and financial aid benefits. They are named after Section 529 of the Internal Revenue Code and are typically sponsored by a state. Earnings in the plan accumulates on a tax deferred basis and are not taxed when used for qualified higher education expenses. (They may also be used for K-12 education.)[2]
According to Florida Prepaid, “In most cases, the Florida College or University will bill Florida Prepaid first, and then any Bright Futures awards can help cover the remaining expenses that are not covered under the Plan (such as books, transportation, and or lab fees).” Any remaining balance will be paid to the student. [3]
That leaves the remaining private 529 account funds. These funds can be used for any further book expenses as well as on campus housing, off-campus housing (up to the cost of on-campus housing), meal plans, and required computers and software. If there are remaining funds from these accounts, they can be transferred to another sibling and may be used for that child’s college or K-12 education. They can also be used by the parent for educational purposes.
Planning for college expenses can be a difficult task. However, there are several methods that can help you accomplish your college savings goals. I can help you with those goals. Please call me if you wish to develop a roadmap for success.
The views and opinions expressed herein are those of the author and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.
Participation in a 529 Education Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an educational institution. Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals.
An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any favorable state tax treatment or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. You may also wish to contact your home state or any other 529 education savings plan to learn more about the features, benefits and limitations of that state’s 529 education savings plan. Furthermore, the Tax Cuts and Jobs Act that was signed into law on December 22, 2017 allows for up to $10,000 a year per beneficiary in tax free distributions from a 529 Plan if used for tuition incurred for enrollment or attendance at a public, private, or religious elementary or secondary school. Check with your state’s guidelines prior to withdrawing the funds.
For more complete information, including a description of fees, expenses and risks, see the offering statement or program description.