Florida Prepaid Savings Plans and service academies

Discussion in 'Service Academy Parents' started by Billberna, Jan 31, 2018.

  1. Billberna

    Billberna Member

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    Does anybody have experience with using your Florida Prepaid Savings Plan for attending a service academy? How does it work? Are the benefits typically paid to the cadet, the academy, or the parents/account owners? And for what expenses is the money usually used - for books? uniforms? computers? Thank you.
     
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  2. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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  3. Billberna

    Billberna Member

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    Thanks for looking it up, but it's not just a 529. It has particular rules and normally pays out to the college upon billing, one semester at a time. Since the academies have no tuition and room and board statements or bills, I am not sure how it applies in our case. Over 100 students in our state attend service academies every year. I am very interested in hopefully hearing back from someone who has successfully been able to use Florida Prepaid to defray educational expenses while at a service academy.
     
  4. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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    Hopefully someone from Florida will chime in @Billberna, otherwise I’d call the plan administrator directly. From looking over several pages of the website though, this plan is referred to solely as a 529 investment, so I’m betting you will get the benefit of the Military Family Tax Relief Act but, obviously, you shouldn’t rely on Internet strangers. I’d call the plan admin directly to get the facts.
     
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  5. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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    @Billberna: I believe that the key to answering questions about any 529-based plan is to understand that the service academies are not 529-qualified institutions, so you have to read your Master Contract (http://www.itppv.com/documents/pdf/prepaid/prepaid-master-contract.pdf) for the rules pertaining to non-qualified instituations. In skimming the Florida contract, I can see that the withdrawals for non-qualified institutions trigger the 10% penalty which is what the Military Family Tax Relief Act was designed to protect against. The Florida contract does not mention service academies at all; the closest potentially relevant section is the one dealing with scholarships. If the plan will consider the scholarship value of the SA (and you would have to get documentation on the scholarship equivalent from the SA), then you would be eligible for the equivalent in a non-penalty refund, basically giving the funds back to you as cash to use as you wish — same as invoking the MFTRA.

    Do you have other children? If so and they choose civilian colleges, you may just want to hold on to these funds for them.

    I have to add, though, that the reason the SAs are not qualified institutions is because all the eligible education expenses that 529s are designed to cover are provided by the government, so you would have nothing to spend them on if you wanted to. Our son is a junior and we have not needed to spend a single penny on him for anything a 529 would cover. We are simply withdrawing the 529 funds at the rate we would be paying tuition at a civilian college (1/4 of the balance in two annual installments x 4 years as recommended by our tax attorney) and moving them into our retirement accounts. But we could just as easily and legally use them for a several cruises or Lamborghinis.
     
    Last edited: Feb 1, 2018
  6. Billberna

    Billberna Member

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    Thanks, Velveteen. I was thinking that this money could be used to help with textbooks, computer, and uniforms and I am wondering if there is a legit way to use the prepaid money to help our cadet with those expenses. Worst case scenario is that we could simply withdraw the principal and close the account. But, as a means of paying tuition, the account is actually worth three times what we put into it so it would be nice if we could get that value out of it somehow.
     
    Last edited: Feb 1, 2018
  7. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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    Not sure why you think you’re entitled to principal only. That’s not how it works. You own the value of the 529, including all gains. If THAT is some peculiarity of the Florida plan, I can’t see anyone agreeing to that.
     
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  8. Wishful

    Wishful "Land of the free, because of the brave..." 5-Year Member

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    I know this won't add up to much, but don't the Cadets have to order textbooks? I remember my DD getting them from Amazon.
     
  9. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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    The government supplies all this through cadet paycheck deductions. No upfront cash is needed, although USMA does provide a way for a one-time, upfront deposit of $2,000 if families want to help defray some initial costs and can afford this. Understand, though, that a kid can show up on R-day with just the clothes on his back and be perfectly fine. The academies don’t descriminate and aren’t based on ability to pay. Everything your kid needs will be provided to him.
     
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  10. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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    Cadets order their books but get a book money allowance deposited to their accounts. In our son’s case, he says it’s always been enough and sometimes a bit more.
     
  11. Wishful

    Wishful "Land of the free, because of the brave..." 5-Year Member

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    Thanks
     
  12. Billberna

    Billberna Member

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    It is not a 529 plan. Yes, people agree to it because it is a perfectly safe investment that grows at the rate of the in-state Florida tuition, as long as you use it for college tuition somewhere, anywhere, as long as it is an accredited institution. The value of the investment is whatever Florida state tuition is in the year that you use it. In 15 years, the educational value of our investment has nearly tripled. By the time DS is a senior, it will be even higher. I'd call that a fantastic investment. Couldn't get that kind of return in a totally safe account anywhere else the past 15 years. The only catch is that it has to be used up by the time DS is 28 years old (or we lose it), and it can only be used for educational "expenses". If you get a full scholarship at any other college, you get back the full value (the tripled amount). That's a great deal. However, the Academies are the only places in the country that I know of where there is no tuition, no room and board, and technically no scholarships. So I just want to hear how others from my state have been able to use their accounts, if at all (including what Velveteen suggested about the Academy writing a memo that his education amounts to a scholarship)
    . And yes, the government "supplies" our cadets with books, uniforms, computers, but it is actually in the form of a loan that the cadet has to repay out of his/her stipend. The Florida prepaid money would be great to use to replace the money that the cadet uses to repay this loan.

    To make it clearer, back in 2002 we purchased this plan at a cost of $9,500. Today this plan is worth $27,000 towards tuition and every year its value is rising. If my DS doesn't go to college, we can only reclaim the $9,500 less a small penalty fee. If he goes to a college with tuition, he can be reimbursed at the rate of about $3,400 per semester - and rising. I have already been in contact with Florida Prepaid and not been able to learn much, except that whatever school my DS attends needs to bill Florida Prepaid. I just want to know who else on this list has been able to use this account for an academy and what they can tell me about their experience. The academy situation is unique and not addressed in the FL Prepaid covenant.
     
  13. thunderheadc6

    thunderheadc6 Member

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    Would love some insight to this as well, we are from FL ,my son graduates HS this spring and has an appointment to the USNA- we have FL Prepaid 2/2 and a 529 as well and I don't know how to begin to use these funds or to just let it sit there.
     
  14. AROTC-dad

    AROTC-dad Moderator 5-Year Member

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  15. VelveteenR

    VelveteenR Just gathering dust in the nursery... 5-Year Member

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    The underlying investment is a 529, but I agree that because it is managed as a pre-paid there are some rules wrapped around it. I’m just trying to help you advocate with the Prepaid people. SAs are non-qualified institutions under your plan, but I believe you have a perfect case to get a full refund (including all the gain) of your account based on the scholarship section of the master contract. Good luck and let us know how you fare.
     
  16. Jcleppe

    Jcleppe 5-Year Member

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    I think I understand your plan a bit better, I live in Washington State, we have a similar program called GET (Guaranteed Education Tuition Program). Our works very similar, you purchase points, 100 points equals one years tuition at the rate of the highest public university in the state. Back when we purchased it cost $3400.00 for one years tuition. We purchased 4 years for both sons over a two year period when they were young. By the time the oldest started college tuition had increased to nearly $12,000 per year, our original investment would cover each year.

    As it turned out both our sons received the AROTC 4 year scholarship. This plan allowed us to use the money toward Room and Board. Both sons joined a Fraternity and the total yearly cost for Room and Board at the Frat was about $5500.00 per year. This left a nice balance in the account each year.

    This is where the plans may differ. Our plan allowed you to take out the balance including the gains each year, if the student was on a scholarship or attended a SA then you were not required to pay the 10% penalty, you were required to show the gains on your 1040 and had to pay taxes on the gains. They did not just reimburse you for what you had originally put into the program, you received back all the gains as well.

    One son stayed in the Frat for two years then moved to an apartment with friends, his yearly cost dropped to about $3800.00 for his last two years. The younger son stayed in the Frat all four years and his average cost was about $5900.00 per year.

    At the end of everything we ended up receiving back from the program more money then we had originally put in after paying all the Room and Board costs for both sons and the taxes on the gains. Best investment we ever made.

    The other difference is that there is not a time or age limit on our program, the money can stay in there and be used later for Grad school or even be transferred to others with no designated end date.

    Now it sounds like your program may be different, sounds on the surface like that only return your original investment if the money is not used at an approved university. I would make sure with them that they don't have some provisions for students that have a scholarship or attend a SA. Seems a little cheap that they would charge you a penalty if they only give you back your initial investment, they have had that money working for them the whole time it sat in the State's accounts.
     
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  17. Billberna

    Billberna Member

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    I appreciate ALL of the input I have gotten on this thread and I will continue to research this. I will return to this thread with whatever I learn. Thank you!