In most cases, a 529 plan is an affordable, easy way to help your college savings grow and allows you to make the most of your savings. However, choosing the right 529 plan can be tricky as you evaluate your options.
If you live in Florida, you might automatically think of investing in the Florida’s 529 plan, but are you simply choosing the convenient option? In this article, we provide in-depth analysis on the Florida 529 plans offered, tax deductions, costs, usability and more. Read on and learn whether you should consider investing in the FL 529 plan for your college costs.
THE VERDICT: Florida residents should consider out-of-state options. Since Florida does not have state income tax, there are no advantages to choosing the FL59. Fees for this plan are almost triple those charged by best-in-class plans. Not sure which plan is right for your needs? Tell us more about you to receive a customized recommendation from CollegeBacker!
WHAT YOU NEED TO KNOW:
- Our Focus: We’re examining the FL 529 plan to determine if it is the best choice for Floridians or if you would be better off investing elsewhere.
- Fees: Expense ratios for the FL 529's age-based portfolios range from 0.68 - 0.75%, which is over 3x more expensive than best-in-class 529s.
- Taxes: There is no special tax benefit or treatment for choosing the Florida 529 plan; the state does not have a personal income tax, so there is no way to get any kind of benefit from the FL529.
- Usability: Poor. Florida’s headlining product is the in-state pre-paid tuition plan; finding information on the FL529 requires some digging.
- Financial Aid: There are no special financial aid provisions for 529 savings in Florida. The standard FAFSA application is used for all financial aid, including funds offered by the Bright Futures state lottery scholarship plan.
OUR DETAILED REVIEW:
1) Our Focus
In this review, we take a detailed look at Florida’s 529 College Savings Plan, also referred to as FL 529. This investment account is specifically designed for college savings and offers tax advantages for investors. Florida also offers a Prepaid Tuition Plan under the same umbrella; this option is only for those attending school in the state and is not covered in this review. Before choosing Florida Prepaid, you should be learn about the drawbacks of prepaid plans.
Florida’s 529 plan is open to anyone; you do not have to be a state resident to open an account and begin saving for college. If you invest in the FL529, then your savings and interest can be used at any college or institution that qualifies. You are not limited to choosing a college in Florida to use the funds in your FL529.
When you invest in any kind of college savings plan, you’re investing in your future. Fees can chip away at your savings and result in less money for tuition and books when it is time to head to school. Researching the costs and fees for the 529 plan you choose can help you make the most of the funds you set aside for your child’s education.
When you open any 529 plan, you’ll be charged Assets Under Management (AUM) fees. These fees are calculated as a percentage of your investment, so the more you save in your 529 (or the more it grows), the higher your fees will be. Best-in-class 529 plans usually charge about 0.20%; knowing the bottom line on fees for any 529 you are considering can give you the best possible outcomes.
For the FL 529 plan, annual AUM fees would range between 0.68% and 0.75%, if you choose a typical age-based investment portfolio. This is more than 3x higher than the best-in-class plans typically charge.
How could the fees associated with the FL 529 plan affect your final college savings? A look at this typical scenario reveals what you can expect:
This year, you saved $1,000 for your child’s 529 account, so your AUM fees would be only $6.80 to $7.50. Over the next 18 years, this would add up to $122 to $135, just for fees. And this is only the fees charged on that initial $1,000 – since your account will grow over time, your fees will actually increase even more as you contribute more. If you factor in any additional contributions, fees will ultimately take a significant amount of your savings.
Choosing a best-in-class 529 plan and using the same figures, your first-year costs would be about $2.00 for that same $1,000 investment. Over 18 years, your annual fees would be only about $36, resulting in savings of anywhere from $86 to $99. Wow!
Initial fees may not seem like much to worry about, but they add up over time and result in less money for tuition and college costs.
Most parents choose 529 College Savings Plans because of the tax advantages; when you add post-tax contributions, they grow tax-free. When it is time to withdraw funds and pay for school, those withdrawals are also not taxable, as long as you are using them for approved education expenses.
Since the State of Florida does not have personal income tax, there are no state deductions or benefits offered if you use the Florida 529 plan. Any plan will work for you if you live in Florida.
Florida’s 529 plan offers the basics, but understanding the 529 plan can be confusing. The state is home to the largest Prepaid Tuition Plan in the nation, so materials tend to skew towards in-state students and savings. In many cases, information on the FL 529 plan is offered as ancillary or a second option to the more detailed information available on the pre-paid tuition plan. The official state site is actually called "My Florida Prepaid” so finding information on the FL 529 could be challenging for some users.
Florida’s 529 plan allows you to open an account with as little as $25, benefitting those who want to start saving but are wary of having to make a large upfront investment. While one of the best features of a 529 plan is the ability to accept contributions from other family members for your child’s education, the Florida system is not intuitive and may be difficult to navigate.
5) Financial Aid
Like many states, Florida uses the Free Application for Federal Student Aid (FAFSA) to eligibility for financial aid. Funds may come from a variety of sources, including the state’s lottery-based Bright Futures program and academic or merit based scholarships.
If you use any 529 plan, including the FL 529, your savings will have an impact on how much money you are expected to contribute towards college. Since the 529 plan is owned by the parent, not the student, it can impact your final Expected Family Contribution (EFC) costs by up to 5.64%. In contrast, student savings impact EFC by up to 20%. There is no special treatment for assets in the Florida 529 plan compared to any other 529.
Since financial aid awards often do not align with the family’s actual financial abilities, having savings on hand to draw from can help your child attend college without being overburdened by student loans.