529 Plan In Florida: Tax Efficient College Planning

529 Plan In Florida: Tax Efficient College Planning

529 Plan In Florida: Tax Efficient College Planning

A 529 plan in Florida may sound like a great way for parents to save money for college. But what exactly are 529 plans and how do they work? 529 plans are named after Section 529, the Internal Revenue Code. They offer families a tax-efficient way to save for college.

Two types of plans Although 529 plans are named after the federal tax code they are actually managed by states. State rules and regulations vary on investment options, potential returns, tax benefits, fees, and rules. It doesn’t matter if you enroll in the state-managed plan. You can enroll your family in a plan administered by another state and get many of the same tax benefits.

Two types of plans are common in most states:

  1. You can lock in your child’s tuition with a prepaid tuition program or a prepaid 529 plan. A set price will be charged now, which is less than the tuition cost for your child’s college education. These plans are not available in all states. Many have residency requirements. You must reside in the state in order to be eligible for the plan.
  2. The college savings program allows you to invest your money after tax, similar to a Roth IRA. Although the plan’s value may fluctuate with the market, your money grows tax-free. No taxes are due when you withdraw the money. Many states also offer tax breaks for the contributions that you make each year.

One of the best things about both plans is the fact that family members and friends can contribute to a child’s 529 plan in Florida. However, there are dollar limits.

Florida offers a 529 college savings plan and a 529 prepaid tuition program. Although fees may be slightly higher for some plans, the direct-sold Florida 529 savings program offers several investment options that can be used by savers of all risk levels.

The Florida Prepaid College Plan allows you to lock in tuition at today’s prices, even if the cost of college rises by the time your child starts college. However, the plan might not cover all educational expenses. Although Florida does not sponsor advisor-sold plans, All Seasons Wealth can pair you with a professional to help you design a college savings plan.

What Education Costs Does A 529 Plan Cover?

The 529 education savings plan provides tax-free earnings growth and tax-free withdrawals for certain educational expenses like tuition and books. You can use the proceeds to pay for room and board. However, there are restrictions regarding off-campus housing.

Some expenses, like student health insurance, are not covered unless they are charged as part of comprehensive tuition or if the fee is required for enrollment or attendance at the college.

  • You can also use the education savings plan assets to cover:
  • You can pay up to $10,000 annually for tuition at K-12 private schools.
  • Graduate and college programs
  • Student loans that have a maximum lifetime limit of $10,000 per borrower

What Plan Should I Choose?

A prepaid tuition program can give you peace of mind if the student is going to an in-state university or college. Most likely, all qualified expenses for higher education at an in-state facility will be covered. (The plans structures differ by state so make sure you verify the details. Your prepaid 529 plan in Florida will pay a fixed amount depending on the contributions you made if your student selects an out-of-state school. If the cost of the school is higher, either you or your student will need to make up the difference.

You can choose how much and when you want to contribute with a typical 529 college savings plan. Although the choice is limited, you can also choose where to invest. Although you have greater control than a pre-paid 529 plan in Florida, you take on more risk. For example, the tuition of your student is not guaranteed to be paid.

What If We Don’t Need The Money Later?

What happens to your 529 plan money if your child does not go to college? What if your child is awarded scholarships but doesn’t have to pay with their 529 plan? There are many options.

First, the 529 money is transferable. The money can be transferred to another child or relative without any adverse tax consequences.

If your child is awarded a scholarship but doesn’t require the money, the amount can be taken out each year and used for non-educational purposes. The proceeds are subject to tax, but you won’t be penalized for them.

Third, you have the option to withdraw the money and put it towards a non-educational purpose. The proceeds will be subject to taxes and a 10% penalty. Legally, you cannot use money from your 529 accounts for your child’s benefit. If:

  • A tax-free scholarship is awarded to the beneficiary
  • The beneficiary attends the U.S. Military Academy
  • The beneficiary passes away

There is no time limit on how much money you can use.

Speak To An Advisor About More College Planning Options

Our financial advisors are dedicated to helping every client with their financial planning in Tampa Bay. We listen to your needs and help you determine the best course of action to pursue your financial goals including college planning.  We then work for you to help maximize your money’s long-term growth based on the individual’s specific situations and risk tolerance. Our team is client-oriented and focused on delivering results for you.  Here are just a few of or services we offer:

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You can pursue your goals with financial planning to help you prepare for a better future for you and your family. Contact us today to speak to a financial advisor in Tampa.

Any opinions are of All Seasons Wealth management in Tampa are not necessarily those of RJFS  or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover education costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.