Managing the Triple Threat – Florida Prepaid College Program, Bright Futures, and Private 529 Plans
If you’re a Florida resident saving for college, the Florida Prepaid Tuition program recently opened its enrollment for families wishing to lock in future tuition costs for their collegebound children. But, this is just one method of paying for college in Florida. Florida also offers a Bright Futures scholarship for high performing students and many families have private 529 Plan accounts to add to their college savings. But how do these programs fit together? With a list price of about $100k in college costs per child,. it’s important to understand how each of these programs fit in to planning and paying for college.
I’m Chuck Lewandowski, CERTIFIED FINANCIAL PLANNER™ professional and I would like to talk about my friends, Christine and Deuce, who successfully managed all three of these programs.
Christine and Deuce are fortunate to have smart, high achieving children and sufficient resources to also take advantage of the Florida Bright Future scholarship and Private 529 Savings plans. A couple of years ago, they came to me and asked how all these options fit together. How should they maximize their savings and manage their withdrawals in the future?
Let’s take a step back and review the basics of the programs.
How Does the Florida Pre-Paid Tuition Program Work?
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 child 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.
What is a Florida Bright Futures Scholarship?
Bright Futures Scholarship Program. – There are two levels of scholarships: Florida Academic Scholars and Florida Medallion Scholars. Academic Scholars has more rigorous requirements and will pay 100% of tuition and fees. Medallion level recipients will receive 75% of tuition and fees. This program is governed by Florida statutes and eligibility requirements are subject to change with each legislative session.[1] Students must apply for the scholarship by submitting a Florida Financial Aid Application no later than August 31st following High School graduation
What does a 529 Plan Cover?
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]
How Do They All Work Together?
Christina and Deuce are in the enviable position of having several alternatives to pay for college education expenses. But what is the best way to sequence the withdrawals? 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.
Accurately planning for college expenses can be a daunting task. If you are interested in reaching your education savings goals, please call me and Let’s Make a Plan!
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.
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[1] Bright Futures Student Handbook – www.floridastudentfinancialaidsg.org
[2] SavingforCollege.com
[3] www.myfloridaprepaid.com