Florida 529 vs. Florida Prepaid: What’s the Difference?
Understand the fundamental differences in how Florida's two college savings plans handle investment growth, tuition guarantees, and financial flexibility.
In Florida, two state-sponsored programs help manage future higher education costs: the Florida 529 Savings Plan and the Florida Prepaid College Plan. Both options provide tax advantages under Section 529 of the federal tax code, but they are structured differently. The 529 Savings Plan operates like an investment account with market-driven growth potential, while the Prepaid Plan is a contract that locks in future tuition rates at today’s prices.
Understanding the Florida 529 Savings Plan
The Florida 529 Savings Plan is an investment account for education savings. When you contribute, you direct funds into various investment portfolios, similar to a 401(k) or IRA, designed to generate growth over time. The account’s value is subject to market fluctuations, meaning it can increase or decrease based on investment performance.
A primary benefit is its tax treatment. Money invested grows on a federal tax-deferred basis, and withdrawals are entirely tax-free when used for qualified higher education expenses. These qualified expenses include tuition and fees, room and board for students enrolled at least half-time, as well as books, supplies, and necessary equipment like computers.
The plan can be used at any accredited college, university, or vocational school nationwide, not just institutions in Florida. This makes it a portable option if the beneficiary decides to attend an out-of-state or private institution. Recent changes also allow funds to be used for up to $10,000 per year for K-12 tuition.
Understanding the Florida Prepaid College Plan
The Florida Prepaid College Plan is a contract that allows you to lock in the cost of future college tuition and most fees at Florida’s public institutions. By purchasing a plan, you pay for tomorrow’s tuition at today’s prices, removing the risk of future tuition inflation. The State of Florida guarantees the plan, ensuring you will not lose the money paid into it.
The plan offers several options, such as a 1-Year University Plan covering 30 credit hours or a 4-Year University Plan for 120 credit hours. Another option is the 2+2 Florida College Plan for students starting at a state college before transferring to a university. These plans cover the tuition and mandatory fees charged by Florida public colleges and universities.
Standard prepaid plans do not cover expenses such as books, supplies, and room and board. To address housing costs, a separate, optional 1-Year University Dormitory Plan can be purchased, which covers the expenses for a standard, double-occupancy dorm room. Payments for these plans can be made either in a single lump sum or through monthly installments.
Key Distinctions for Decision-Making
The primary distinction lies in the investment approach and associated risk. The Florida 529 Savings Plan is an investment vehicle where returns are tied to market performance, offering potential for growth but also carrying the risk of loss. In contrast, the Florida Prepaid College Plan provides a state guarantee to cover future tuition at a locked-in rate, so its return is effectively the rate of tuition inflation.
Flexibility is another difference. The 529 Savings Plan offers broad usability at any accredited institution nationwide for a wide range of qualified expenses. The Prepaid Plan is designed for Florida’s public colleges, and if a student attends a private or out-of-state school, the plan pays a “transfer value” equivalent to what it would have paid a Florida public institution.
For financial aid purposes, both plans are treated as a parent’s asset on the FAFSA, which has a smaller impact on aid eligibility than assets in the student’s name. If the beneficiary receives a scholarship, you can request a refund from a Prepaid Plan for the amount the plan would have paid. With a 529 Savings Plan, you can withdraw an amount equal to the scholarship without the 10% penalty on earnings, though income taxes apply to the earnings. If the beneficiary does not attend college, funds in either plan can be transferred to another eligible family member.
The Enrollment Process
To enroll in either plan, you will need personal information for the account owner and the beneficiary, including names, addresses, dates of birth, and Social Security Numbers.
The Florida Prepaid College Plan has an annual open enrollment period, from February 1st through April 30th. During this window, you can visit the official website to select a plan, choose a payment option, and submit the application.
Conversely, the Florida 529 Savings Plan is open for enrollment year-round. The process on the plan’s website involves selecting from investment portfolios, which can be age-based or static, and then completing the online application to open the account.