We all want the best for our children. That means an outstanding college education, fantastic opportunities, and a long and prosperous life. We also want to help them achieve those means in the most efficient way possible, right? That’s why we have the 529 College Savings Plan, an investment account that enables you to prepare for college’s (outrageous!) costs.
What Are 529 College Savings Plans?
529 College Savings Plans are special accounts that help families save for higher education expenses through investments.
Some of its key features are:
Room and board
Textbooks, supplies, and equipment required for enrollment or attendance;
Computers, peripheral equipment, software, and internet service
Special needs services
Failing to use any withdrawal for qualified expenses comes with consequences. Besides having to pay income tax on your withdrawals, you will also have to pay a 10% penalty.
A 529 plan never expires, meaning you can keep contributing to it for as long as you like, forever! If your child moves states, their 529 plan can follow them. There’s no need for your child to go to college in Florida – they can go to any college they like, public or private, across the country, and their 529 funds will pay for the qualifying expenses. If one child decides not to go to college, you can easily use the funds to pay for your other child’s education.
If your child does not attend school, you still have ways to avoid the 10% federal penalty. In 2024, Roth rollovers will become available. The newly implemented Secure 2.0 Act allows the transfer of 529 funds into a Roth IRA under the same beneficiary’s name, provided you meet specific criteria.
The 529 plan must be active for at least 15 years
The 529 beneficiary and Roth owner must be the same person
No more than $35,000 can be transferred ($35,000 lifetime limit)
Roth yearly funding limits still apply ($6,500 in 2023, ($7,500 for those 50 and older)
529 Investment Options
This is where Florida’s 529 plan shines. You have several options when it comes to your investments in your 529. Looking through their investment options page, several low-cost Vanguard index funds are available, such as the Total Stock Market Index Fund and the Total International Index Fund, both of which are core components of the 3-Fund Portfolio.
Bear in mind that, as with any investment, there is the chance of loss or simply down years. One scenario could see your assets drop in value right when your child goes to school, leaving you with fewer funds than expected. Consulting with a financial advisor can help you manage that risk and keep your 529 portfolio aligned with your overall risk tolerance and financial goals.
Unlike other investment accounts, such as the Roth IRA, there is no limit on how much you can put into a 529 account. But that doesn’t mean you should overload it; any contributions over the gift tax limit will be taxed. In 2023, the gift tax exclusion is $17,000 for single individuals or $34,000 for married couples.
However, if you have a large lump sum of money and want to invest it immediately, you can use a superfunding strategy. This clever strategy entails contributing five years of gift tax exclusions straight away into the 529 plan and then spreading out the gift over five years on your tax returns. You can contribute up to $85,000 to a 529 plan in 2023 and then report it on Form 709 while doing your taxes for those five years.
Florida Prepaid Plans
Florida’s college savings benefits don’t end with the traditional 529 account. The Sunshine State also offers a Prepaid Plan that locks in a lower tuition rate than a projected one. For example, if a university’s tuition is expected to be $10,000 annually in 2030, you can lock in a tuition price lower than $10,000. If the cost increases higher than expected, the State of Florida guarantees all fees will be covered. You will receive the difference if tuition prices drop and your balance exceeds the cost. The plan also follows your child if they decide to move out of Florida.
In these days of skyrocketing higher education costs, 529 Plans prove a valuable tool in helping offset these costs with the power of compound growth. Florida, in particular, has a strong 529 Savings Plan that every Sarasota family should take advantage of. With double tax advantages, a choice of low-cost funds, and a guaranteed Prepaid Tuition Plan, it’s hard to go wrong.
Are you planning for your children’s future and unsure of the best way to do so? Give us a call or click the button below to get started!
Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm.
Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.
Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.
Joshua M. Pisa is the Director of Wealth Management at Walters Strategic Advisors, LLC. As a member of the firm’s Wealth Management team, Josh’s responsibilities involve comprehensive wealth management, tax consulting, planning, and compliance services. He has over 15 years of industry knowledge specializing in solving the unique issues his clients encounter. Josh has experience in wealth management and individual taxation, trusts and estates, family partnerships, and other privately held businesses.
All of your assets are controlled by you and held in your name by our independent custodian, Charles Schwab or Fidelity Institutional. I receive no compensation from them. You can check your portfolio 24/7 on their website. I will have limited power of attorney to execute transactions on your behalf.
We are a Florida-based tax-focused fiduciary financial advisory for individuals and families seeking customized long-term, tax-efficient wealth management solutions.
3277 Fruitville Rd # E
Sarasota, FL 34237
Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.
Separate from the financial plan and our role as a financial planner, we may recommend the purchase of specific investment or insurance products or account. These product recommendations are not part of the financial plan and you are under no obligation to follow them.
Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods.