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Financial Advisor Series: 5 Nuances to Florida 529 Plans

| June 12, 2018
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 I live in Ponte Vedra, FL, in the community of Nocatee, and one of the largest contingents of new residents are families with children still in their younger years. As a financial advisor at Capital Analysts of Jacksonville, one of the topics that I’m most often asked by parents is not how to go about investing for retirement and financial planning, but on the intricacies involved around 529 plans which are an imminent & real expense to them. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. While planning for both are important, here are some of the questions I’ve received relating to 529 plans for Florida residents:


  1. Do 529 plans affect how much financial aid my child will receive?

Florida 529 plans will count as an asset included in your EFC (expected family contribution), which will lessen the amount of aid received. The EFC is subtracted from the cost of attendance for each college that you apply to in order to determine a student’s financial need. A 529 plan in the name of a parent is an asset that is assessed at a rate of 5.6% towards the EFC. If a 529 plan is worth $100,000, for example, then $5,600 will be added to that student’s EFC.

  1. If the grandparents maintain the 529 plan does that affect financial aid?

Grandparent owned 529 plan accounts are not listed as an asset for financial aid purposes. However, withdrawals that are taken out are counted as student income the following year at a rate of 50%. One of the recommendations when using a 529 plan from the grandparents is if the student is receiving financial aid, it may make sense to wait till the spring of the student’s junior year to start using money from a grandparents 529 plan.

  1. What if my child gets a scholarship or doesn’t appear to be interested in college? What should I do with the money?

It is important to avoid over-funding a 529 plan because if the child doesn’t use the funds and they are withdrawn for purposes other than education, then not only are taxes assessed but so is a 10% penalty on any earnings from the account. To avoid paying the penalty/taxes on the account you can either shift it for the use of another child, keep it around in order to pay for the next generation of the family, or use it on personally furthering your own education in fields you may have wanted to pursue. As of 2018 some funds are also allowed to be used for educational expenses incurred while the student is in K-12.

  1. If I signed up initially for a 529 savings plan, can I shift funds to a prepaid plan?

Currently the Florida Prepaid plan is not set up to accept rollover funds from a 529 plan. You can shift between different 529 savings plans only once a year if you so choose, but you must make sure that the money goes from one qualified tuition plan to another within a 60 day window, or else a 10% penalty will be imposed. In the state of Florida contributions are not tax deductible, which means there really isn’t a tax benefit in shifting to a Florida 529 plan.

  1. How do I select the right 529 plan for me?

Since there is no state income tax in Florida, there is no need to limit yourself to the Florida 529 plan, providing you with more choices than someone living in a state with high state tax rates. It now becomes a matter of choosing the plan that best suits your needs. Keep an eye on things like maintenance & administration fees, investment manager fees, and fund selection. If you don’t live in Florida, look into any favorable tax benefits that may be available to you as that will tend to be the most important benefit.

Take time to look into whether you’re on track to provide your student with the funds you wish to contribute toward their education. It’s very common that parents don’t cover the whole expense; just make sure that you are providing what your original intent was through proper financial planning with a qualified financial advisor. For more information or to speak with a financial advisor at Capital Analysts of Jacksonville, contact us (904) 730-7433.



Disclaimer:  This content was developed from sources believed to be providing accurate information. The information in this material is not intended to provide legal or tax advice. You should consult your legal or tax advisor for information concerning your individual situation.  

Participation in a 529 College 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 college savings plan to learn more about the features, benefits and limitations of that state’s 529 college 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. 

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