Florida Prepaid VS Florida 529 Plan (Which one wins?)

So you're a Florida resident and you're starting to think about how you're going to pay for your kids college. Every time you look at the costs, it just seems to be going higher. It can be overwhelming. So the goal of my video today is to directly compare the Florida prepaid plan to the Florida 529 plan in simple terms so that you can make the best decision for your family. I'm going to compare these plans in seven categories. Format, enrollment, funding, coverage, flexibility, rate of return, and exit strategies, and financial aid interference. If you're new to the channel, hi, I'm Julia, Certified Financial Planner and Managing Director at URS Advisory. I'm going to review the nine most important differences between these two plans, the advantages, the disadvantages of each one. So let's get started. Format wise, Florida 529 and prepaid plans are very different and it reminds me of the difference between a pension and a Roth IRA. As long as you pay the specified premiums, a Florida prepaid is guaranteed to cover a certain number of credit hours when your child reaches 18. However, this is only guaranteed if you go to a state school. Like a pension, it provides a specific benefit. This plan does not rely on the stock market and if inflation is higher than what is anticipated by the plan, the plan will cover the difference. It's the simplest way to pay for a Florida college. On the contrary, a 529 savings plan is like a Roth IRA and that you are contributing after-tax money to an investment account in whatever funds you choose that will grow tax-free if used for a qualified education expense. The performance of the plan depends on the funds you choose, so there is no guarantee. Enrollment and funding. Enrolling in a Florida prepaid plan is super easy and you can do it right through the Florida prepaid website at myfloridaprepaid.com. I'll put a link to it below. The cost of the plans are also outlined on their website. Here's a snapshot from the plans and pricing page. You simply type in your child's date of birth and the website will tell you exactly how much you need to pay and your options for payment. You can choose to pay a monthly amount to your child's age 18 or a monthly amount for five years or a one-time lump-sum payment. There are five different plans to choose from ranging from the least expensive option of a two-year community college plan all the way to the most expensive which is a four-year state university plan. Any one of these would cover your child's college or university tuition and fees up to their age 28 or the year 2052. For my boys, I did the four-year university plan and we pay it monthly so it would cost $140.99 per month to my child's age 18. This would cover 120 university credit hours at their age 18 regardless of what inflation does and the estimated payout is $63,500 in future dollars. You can also opt to pay a monthly amount over a five-year period or in one lump sum. Please note though that we are not in open enrollment period so if you submit your application between May 1st and January 31st you will be notified of your final prepaid plan price in February of 2025. Enrolling in the Florida 529 plan is just as easy. You actually go to the same website myfloridaprepaid.com and log in or register for an account. Once you're in your portal you click add plan now located here and complete the application. Within your application you can choose the fund that you'd like to invest in and how much you'd like to contribute each month. If you want to know how much you need to invest based on the college I love Bloomwell's free tool and I'll put a link to that in the description below. By the way if you're finding this video helpful don't forget to subscribe to our channel and click the bell to be notified of new videos. All right coverage. Let's talk about what each of these plans cover and I'll start with the Florida prepaid plan. The Florida prepaid plan covers the future cost of college tuition, tuition differential fees, local fees, and even dormitory housing if you choose. So even if the cost of college in Florida is higher than anticipated when your plan prices were set your prepaid plan will cover the full cost. Your contributions are guaranteed by the state of Florida. So to summarize tuition fees and housing if you chose the housing plan. A Florida 529 savings plan is much more comprehensive in that these accounts cover tuition and fees but also technical trade and vocational schools. 529 plans also cover room and board, meal plans, summer rent, studying abroad, books and supplies, and even K-12 private school tuition. Not only all of that but you can use $10,000 per borrower to pay off student loans and my new favorite rule of being able to roll over a total of $35,000 per child from unused 529 funds to a Roth IRA in your child's name. This is an awesome way to kickstart their tax-free bucket of money so please be sure to read up on the rules around that with a professional as there are several rules. Flexibility. We can clearly see that 529 plans are much more flexible and that they cover more than a Florida prepaid plan and have a much longer length of use. Remember you can use 529 funds to pay for private K-12 tuition and school up to 10 years post age 18. That's a use period of 23 years instead of just 10 with the Florida prepaid plans. Rate of return and exit strategy. The Florida prepaid plan does not have a rate of return per se. They simply promise that they will cover a certain number of college credits at a specific date in the future regardless of inflation. But if your child does not use the funds you will only get a refund of exactly what you paid, no interest. Your only other option is to transfer the credits to a qualified family member. On the contrary a 529 savings plan funds are invested in whichever mutual funds you choose so the rate of return depends on however the underlying investment performs. If there is still money in the account after your child is done with school you can also transfer the funds to a family member or you could take advantage of the new Roth IRA rollover rule that I explained earlier. If there is still money left over after that you can cash out the rest and pay ordinary income tax on the earnings that were deferred and possibly a 10% withdrawal penalty though there are some exceptions. I'll put a link to the exceptions in the description below. Fees. Here are the Florida prepaid fees. Other than your monthly contributions you have an application fee of $50 and a termination fee of $50. There are also insufficient funds and late payment fees but that's it. Florida Prepaid does run specials where they will weigh the enrollment fee so make sure to keep an eye on their website for these specials. With the Florida 529 plans there are no fees, no enrollment or application fee, account maintenance fee or program management fees. Your only fee with your Florida 529 savings plan is the fund fee for your investments. For example we have our boys in and their annual fee is just two basis points or two percent of one percent. Super low. Financial aid interference. In Florida we fill out the FAFSA form or the free application for federal student aid. College and career schools use this form to determine how much financial aid your child is eligible to receive which could include grants, scholarships, work-study funds and loans. They take a calculation of your total family assets formerly called your expected family contribution and they use that number to see what aid will qualify for. Fortunately both Florida Prepaid plans and Florida 529 savings plans are treated as an asset of the account owner or the parent and assessed at a maximum rate of 5.64 percent. So the effect on financial aid is pretty small. The only difference is that the amount reported for Florida Prepaid is the refund value of the plan as opposed to the current account value with the Florida 529 savings plan. All right Florida parents there you have it. As you can see these plans are vastly different and now you should know maybe which one or which combination of the two make the most sense for your family. Feel free to leave questions or comments below we'd love to hear about your experience with either plan. Thanks for watching and I'll see you next time.