When saving for your child’s college education, you have many options to choose from. The two most popular options are a Florida Prepaid plan vs 529 plan. Are you like most parents? Do you want to do what’s best for your child but are confused by the differences in the choices?
Have you ever felt like a quarterback in the middle of a hail mary pass when trying to choose between a Florida Prepaid plan and a 529 College Savings Plan for your child’s education? As a parent, you want to make the best decision possible to secure your child’s future, but the sea of options can be overwhelming. Don’t worry, you’re not alone.
In fact, one of my clients, a hard-working father of three, recently reached out to me for guidance on this exact topic. He was feeling the pressure of making the right decision and needed some help navigating the murky waters of college savings plans. So, I put together this article to help him, and anyone else in the same boat, make an informed decision that will set their child up for success. Let’s dive in!
I will start with an overview and then get into more detail as you go through the article. I will then walk you through the calculations and the numbers for choosing between a Florida prepaid vs 529 plan. I will even provide 529 college calculators to play around with the numbers if you prefer. Lastly, I will provide you with several resources about college education’s current and future costs.
In the interim, here are a few recent articles I wrote that you might find interesting and relevant as well:
RELATED READING:
- Paying For College
- The Florida Prepaid College Plan – What You Need To Know
- College Savings Options – Everything You Need To Know About 529 Plans
- 27 Answers to Your Most Important 529 Plan Questions
- The Florida Prepaid College Plan – What You Need To Know
- Complete Guide – Everything You Need to Know About Life Insurance 2023
Although I am using Florida’s prepaid plan and Florida’s 529 savings plan as examples – I want every reader to understand why:
- Florida’s prepaid plan is considered the gold standard in the country and the most popular college prepaid plan. So it only makes sense to use the Florida prepaid plan as an example.
- Understand that 95% of the information in this article will relate to most non-Florida situations as well!! So whether or not you are in Florida or interested in the Florida prepaid plan or Florida 529 savings plan, the information here will be just as relevant to your situation.
Overview: Which Is Better – Florida Prepaid vs 529 Plan?
Here’s a quick overview of each plan:
- How does the Florida Prepaid work? With a Florida Prepaid plan, you pay in advance for your child’s future tuition and fees at any participating public college or university in Florida.
- The plan is backed by and guaranteed by the state of Florida, so you know that your investment is secure.
- With a 529 plan, you open an account in your child’s name and contribute to it over time.
- The money grows tax-free and can be used for tuition, fees, and other college expenses at any accredited college or university in the country.
Differences: Florida Prepaid Plans vs Florida 529
So, which plan is right for you? There are a few things to consider when making your decision between a Florida prepaid plan and a 529 plan:
Future Tuition – College Tuition Inflation
- Florida Prepaid plans only cover tuition and fees at in-state schools. If you plan to send your child to an out-of-state school, a 529 plan is the better option. See MyFloridaPrepaid for more details.
Average Student Loan Debt
Payments, Investments & Investment Risk
- If you’re worried about the stock market and investment volatility, a Florida Prepaid plan may be the way to go. With a 529 plan, your investment is subject to market volatility, but your investment is guaranteed with a Florida Prepaid plan.
Coverdell Education Savings Account as Another Option
- Feel free to compare 529 plans by state before deciding
Ultimately, it’s up to you to decide which plan is best for your family. Of course, consider your child’s goals and financial situation when deciding. But let me help you decide by providing you with all the information you will need to make a well-informed and educated decision.
Differences: Florida Prepaid vs 529 Plan
529 Florida Prepaid Plans
- Allows you to prepay your child’s costs of college tuition and lock in today’s prices
- You allow the state of Florida to take on the investment risk and invest on your behalf.
- You cannot lose money – the plan is backed and guaranteed by the state of Florida.
- You choose from 3 investment mix options: you can pay monthly, over five years, or in a lump sum.
- Florida Prepaid is considered the less flexible but more conservative option.
- You can apply anytime, but open enrollment begins on February 1st of each year when the state of Florida releases the Florida Prepaid pricing for the year.
- The child must be a Florida resident, and you can open an account anytime from newborn to 11th grade.
- Florida prepaid covers tuition & fees. There is an additional Florida prepaid dormitory plan at an additional cost.
- Florida prepaid is designed for in-state FL public colleges and universities, but you can use the proceeds at other out-of-state schools.
- If your child gets a scholarship, goes to graduate school, or chooses not to go to college – you CAN get a refund.
- The Florida prepaid tuition plans price is locked in and is suitable for up to ten years after the child’s expected High School graduation date.
- The Florida prepaid account is tax-free when it is used for higher education.
- You can transfer the prepaid college plan to a family member or ask for a refund.
- Visit my Florida prepay login to review your account.
529 Savings Plan
- A way for you to save and invest for your child’s future education expenses.
- You can personally choose from several investment options and change the investment allocations on your own.
- You can choose how, when, where and how often you want to invest.
- Florida 529 plan is much more flexible while you maintain the risk vs reward of investing.
- Any child or adult can use the 529 savings plan.
- The FL 529 plan doesn’t just cover tuition – it can be used to pay tuition. Fees, housing, meal plans, books/supplies – as long as you are enrolled at least part-time in college.
- The FL 529 college savings plan can be used virtually anywhere – there is no set time to use it. It has incredibly flexible usage time requirements.
- You assume the investment and inflation risks but may be rewarded with higher investment returns over time.
- Withdrawals from the Florida 529 plan may be tax-free if withdrawals are used for higher education.
- You can transfer the 529 plan to any other beneficiary that you choose, or you can withdraw the account (taxes and penalties may apply)
Florida Prepaid Program
FAQ’s
How does the Florida prepaid work?
The Florida Prepaid Plan is a program that allows families to save for their child’s future college expenses. The plan offers various options, including a 2-year community college plan, a 4-year university plan, and a 4-year university plan with a dorm option. Families can choose to pay for the program in monthly installments or a lump sum. The money in the plan is then used to pay for the child’s tuition, fees, and other eligible college expenses when they enroll in college.
Is Florida prepaid tax deductible?
In general, Florida the prepaid tuition plan is not tax deductible. This is because the tuition is paid in advance and is not considered an eligible education expense under the IRS tax code.
Is 529 pre or post tax?
Contributions to a 529 savings plan go in with after tax contributions. There is no Florida 529 tax deduction since there is no FL state income tax. Each state has its own rules on whether its state’s 529 savings plan is tax deductible.
When is the Florida prepaid open enrollment period?
Florida prepaid open enrollment is typically from February 1 through April 30. During the Florida prepaid open enrollment, you can lock in future cost of college tuition costs at today’s prices – but you can apply at any time throughout the year. Plan prices start as low as $45, and beginning in 2022, Florida prepaid promo code allows you to earn up to $500 for opening a prepaid plan, and they have also eliminated the $50 application fee.
What is the Florida prepaid refund process?
When a Florida Prepaid College Board account is closed, a refund is processed based on the type of plan and the number of months of contributions. The refund process can take up to eight weeks.
If a plan is closed within the first five years, a refund of the account value is paid to the account owner. If the program is closed after the first five years, a refund of the account value minus the value of benefits used is paid to the account owner.
If a plan is closed due to the account owner’s death or the account owner’s dependent, a refund of the account value is paid to the account owner’s estate.
To close an account and request a refund, the account owner must submit a notarized request form and a copy of the account owner’s driver’s license or other government-issued identification to the Florida Prepaid College Board.
Can you open a 529 before your child is born?
Technically, you cannot open a 529 savings plan or prepaid it before your child is born. Instead, you must add a child’s name and social security account to the application.
However, the workaround is to name someone else on the application and change the beneficiary when your child is born.
SUMMARY – Florida Prepaid vs 529 Plan
- Florida Prepaid College plan locks in the cost of college tuition rates at today’s prices for specific schools.
- Florida 529 savings plan allows you to invest in a tax advantaged college savings plan that can be used for higher education expenses at ANY eligible school. 529 savings accounts are several times more prevalent than Florida prepaid.
Here is what Danny Cieniewicz, CFP® at Hyperion Financial has to say about 529 plans:
- They work very similarly to qualified retirement plans, such as 401(k) plan, in that they grow tax deferred, and they can be taken out tax free in the event you use the funds for qualifying education expenses.
- These can be used for tuition from grades K-12 (up to $10k/year) and can also be used to pay off student loans, up to $10k lifetime.
- They also have great transferability features – the 2 best ones being that you can transfer unused funds to a family member who is also going to be going to college (and this is penalty free), and beginning in 2024, you can rollover unused funds to a Roth IRA.
- One major update in 2023 is the SECURE 2.0 Act. Beginning in 2024 you can rollover unused 529 plan funds to a Roth IRA (up to $35,000)
- This feature has some caveats to it (the 529 account needs to be open minimum of 15 years, only the maximum Roth contribution is allowed every year, lifetime max of $35k can be rolled over, among others), but it makes saving for the 529’s early a very attractive option.
- These College Savings Plans are typically invested in the market, and you have numerous options that can be utilized (from conservative to aggressive). It does take some upkeep on these accounts though, since the timing of college is important. If we experience a down year for the stock and bond markets like we did in 2022, it could cause a decrease in account size, and may throw off a budget for college as a result.
- In the event 529 plans are withdrawn and not used for qualified education expenses (and not transferred to a family member or rolled over to a Roth IRA), you would be subject to a 10% penalty and the interest gained on the 529 is taxable as income.
What Are the Benefits of a Florida 529 Plan Compared to a Florida Prepaid Tuition Plan?
Learn all about the florida 529 plans and discover the advantages they offer over a Florida Prepaid Tuition Plan. A Florida 529 plan provides flexibility, allowing you to save for various education expenses, including tuition, room and board, books, and more. Unlike a prepaid tuition plan, a 529 plan lets you choose from a wide range of investment options, potentially yielding higher returns. Moreover, you can use the funds at eligible schools nationwide, not limited to just in-state institutions.
Is There an Alternative to 529 Plans?
Sure, you always have choices. For example, you can always choose between a Florida prepaid vs 529 plan, save for college in a regular taxable account, invest in a Roth IRA, etc. There are two other traditional accounts that people use for saving for college, though: a Coverdell Education Savings account or using the more conventional UGMA/UTMA.
To put it in perspective, there are over $450 billion of college savings plan investable assets. Almost 90% of that, or $400 billion, is in 529 plans vs prepaid tuition plans, which have about $28 billion. The remainder is invested in UTMA, UGMA, ESA’s and other accounts.
Below are four tabs where I break down the reasons that you would use each of the four to save for your child’s college tuition and expenses. Click on each tab and review each option:
- 529 Savings Plan
- Florida Prepaid Plan
- Coverdell Education Savings Account – ESAs
- Traditional UTMA & UGMA
- Offer a tax deduction in over 30 states for contributing to residents of their plan.
- Federal and state tax-deferred and potentially tax-free withdrawals (IRS Pub 970)
- Has a limited impact on student’s college financial aid FAFSA calculator (~5% if it is parents’ name)
- Depending on the state plan – the contribution limits are huge: $235,000 to $542,000 per beneficiary.
- You can choose a state other than your residence or your own state’s plan. Be sure to compare 529 plans by state before making a decision.
- If the child chooses not to go to college, the parents maintain control of the i529 savings plan investment account.
- You can transfer the proceeds of the plan to another beneficiary.
- The 529 savings plan can be used for graduate school programs.
- You can save up to $17,000 per year – or $85,000 ($170,000 for married couples) in one year if you treat it as a 5-year contribution.
- If you choose age-based funds, you can ‘set it and forget it – you won’t need to manage the investments actively.
- If you do not use the 529 savings plan for eligible higher education expenses – there is a 10% penalty, and the earnings will be taxable.
- The cost of the Florida prepaid plan is based on the child’s age – and the parents can pay for the cost of college tuition and expenses based on today’s prices and rates.
- You face no stock market investment of inflation risk – you have transferred that to the state of Florida while choosing funds such as Vanguards 529 options.
- The 529 prepaid plan is less flexible vs 529 savings plan and substantially less available – only 9 states offer a prepaid college plan, and some are closed to new investors.
- There is now a Private College 529 Prepaid plan offered for those interested in private school. About 300 private colleges such as Princeton, MIT, and Stanford participate in the private college prepaid plan.
- If you require a refund from your Florida prepaid plan, it is an option – other state plans may have different restrictions.
- You get the same Federal and State tax deduction in an ESA by investing in a 529 savings plan, but you do not get state tax advantages.
- As your ESA account grows, you may have to pay income taxes on the investment earnings – unlike 529 savings or Florida prepaid plan.
- Like a 529 savings plan, an ESA account will have a 10% on the withdrawn earnings but not be used for educational expenses.
- You can use an ESA account for K-12 education expenses and higher education tuition and expenses.
- There is a very restrictive annual contribution limit of only $2,000 per year per beneficiary. In addition, there are income phaseouts of even being eligible to make an ESA contribution in the first place.
- You can only contribute to an ESA up until age 18
- Parents can maintain control of the account only up until the beneficiaries age of 30
- Very popular with Grandma and grandpa – as UGMA and UTMAs are plans, they have been contributing for the grandkids for years.
- Wealthier families traditionally use UGMA and UTMA to transfer assets from the parent’s or grandparents names to the lower-taxed children’s name
- There is no state or local education tax benefits or breaks for a UTMA or UGMA
- You do have limitless investing options to choose from, and significant contributions and gifts are allowed.
- You can use the money in a UGMA or UTMA at any time you choose – for the “benefit of the child” as opposed to being limited to using it for “educational expenses.”
- The child does gain access and control to the accounts much earlier – as early as 18 or 21, depending on the state.
- A UGMA or UTMA is considered the child’s asset, dramatically hurting eligibility for financial aid. About 35% of these accounts count towards the family’s expected contribution to the college, vs 5% of 529 plans in the parent’s name.
Here is what Danny Cieniewicz, CFP® at Hyperion Financial has to say about using a regular savings account for college savings:
“I don’t think this is the best place to save if you have funds earmarked for your child. The main reason why is because there are no tax benefits on the growth (interest would be taxable), and the interest rate is very unlikely to be competitive with other plans. I think if you’re going to save for college, it’s worth separating it from a savings account. The savings account is a great place to hold funds for an emergency fund, but there are better options for a college savings account.”
Danny Cieniewicz, CFP®
Financial planner Mr. Cieniewicz continues, regarding UTMA/UGMA accounts: “A factor that could be considered a pro or a con is that these accounts become property of the child’s and that is irrevocable. Therefore, a parent cannot decide to change the beneficiary at a later date. They become property of the child’s. The other benefit is that there is no penalty in the event the child decides not to use these funds for education. So if the child is entrepreneurial and wants to start a business out of high school and needs some funding, they can tap into their UTMA/UGMA and the withdrawal is not penalized.“
Calculations To Help Decide Florida Prepaid vs 529 Plan
To help you decide between a Florida prepaid vs 529 plan – the below calculations and college savings calculator will be very handy. I compared the current college cost of a University of Florida in-state resident tuition to a private college. UF currently costs about $6,380 for tuition and a total cost of a college of $21,810 per year. A private college averages $38,070 for tuition and $54,880 for the full college educational expenses.
I assumed a 5% annual inflation for the future college costs – to put that in perspective, Florida in-state tuition has not increased in about ten years. Before that, though, it was growing by 10-15% annually, so I am assuming a 5% inflation. Of course, you can use the college savings calculator and adjust the assumptions to your liking. I also assumed the child is a newborn, and you will invest monthly and earn a 9% average annual rate of return.
As you can see, the Florida prepaid tuition plans for the four-year Florida University plan will cost you over $180 per month. On the other hand, if you save shy of $100 monthly payment into a 529 savings plan – you can anticipate having enough to cover UF tuition for four years.
See the chart below, and play around with the college savings calculator below. I will also include a student loan payment calculator as well – if you want to see how much it will cost to pay back student loans after college.
Admissions: Average College Tuition by School Type
As you can see from the chart below, the average college tuition by school type varies quite a bit. It is important to note that the cost of college is subject to change, and this chart is based on data from the 2022-2023 school year.
With that said, the average cost of tuition for a public four-year university is $6,380, while the average cost of tuition for a private four-year university is $38,070.
As you can imagine, the cost of college is a major financial consideration for many families. There are a number of college savings programs available to help families save for college. The Florida prepaid plan allows you to lock in the prices today, to minimize the risk to you that the cost of college might increase substantially by the time you send your child to college.
Other programs include the 529 Plan, which is a college savings tool that offers tax advantages. There are also a number of college savings vehicles, such as Coverdell Accounts and UTMA/UGMA Accounts, which can be used to save for college.
The bottom line is that the cost of college is a significant expense, and it is important to plan ahead. There are a number of college savings options available, and it is worth exploring all of your options. Talk to your financial advisor, college planning experts, and admissions counselors to get started.
| Florida Prepaid | 529 Savings Plan | Private Universities | |
| 2022-23 Tuition | $6,380 | $6,380 | $38,070 |
| 2022-23 Total Cost | $21,810 | $21,810 | $54,880 |
| Monthly Savings | $180.51 | $94.08 tuition only | $561.41 tuition only |
| plus non tuition expense | $321.63 for full college | $809.30 for full college |
College Savings Tools
The 529 College Savings Calculator is a great tool to use to estimate how much you will need to save for college. It takes into account the future inflation of college costs and the contribution you will need to make to cover those costs. It also considers the possibility that the cost of college might increase over time.
The Student Loan Calculator is also a helpful tool to use to estimate your college costs. It takes into account the cost of college enrollment and the amount of financial aid you will be eligible for. It also considers the length of time you will need to repay your loans. Both of these tools are helpful in estimating the costs of college and determining how much you will need to save.
They both provide different perspectives on the cost of college and can be used to create a more accurate estimate of your total college costs.
529 College Savings Calculator
Student Loan Payment Calculator
How Do I Choose Between Florida Prepaid vs 529 Plan For College?
In most cases, you can pretty much eliminate the choices of an Educational Savings Account ESA or an UTMA or UGMA – the benefits of savings for college with those two accounts are just too limiting and only benefit a very small minority of people.
When it comes to saving for college, there are a few different options available to parents. Two of the most popular options are the Florida Prepaid Plan vs 529 Plans. So, how do you choose between the two?
There are a few things to consider when making your decision.
- The first is how much you can afford to save. The Florida Prepaid Plan requires a lump sum payment option upfront, so if you can’t afford that, the 529 Savings Plan may be a better option.
- The second thing to consider is how much control you want over how the money is used. With the Florida Prepaid Plan, the money can only be used for tuition and fees at a Florida Public University or college. With the 529 Savings Plan, you can use the money for any qualified education expenses, including room and board, books, and even some private schools.
- Finally, think about your child’s future plans. If they are planning on going to college out-of-state or attending a private school, the 529 College Savings Plan may be the better option.
Ultimately, there is no right or wrong answer when it comes to choosing between the Florida Prepaid Plan and the 529 Savings Plan. It really depends on your individual circumstances. Talk to a financial advisor to get more information and to help you make the best decision for your family.
RELATED READING:
- The Florida Prepaid College Plan – What You Need To Know
- College Savings Options – Everything You Need To Know About 529 Plans
- 27 Answers to Your Most Important 529 Plan Questions
- The Florida Prepaid College Plan – What You Need To Know
- Complete Guide – Everything You Need to Know About Life Insurance 2023
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.
