<p>We have the florida prepaid account ( considered to be a form of 529). My d will be graduating HS in 2 yrs, and we want To to set aside money for college during these next couple years. In reading about 529s I don't see any real advantage to contributing to a 529 instead of just setting the money aside in a regular account or investment at this point. We'd be choosing a conservative investment since it won't be for a long period of time, so tax benefits on the earnings wouldn't likely be that great, and if she does go to a fl school, and gets scholarships, it is possible that we'd have more money in the account than what she'd need for college, so we'd end up with non qualifying withdrawals. We do want to be prepared...as much as possible..in the event she goes to an out of state or private college, in which case the florida prepaid ( which would cover the equivalent of a fl in-state's tuition) wouldn't be nearly enough on its own.
Am I right in thinking the benefits of an additional (beyond the prepaid) 529 would be minimal at this point, or am I missing something? We will plan on filing the fafsa, and will need financial help in order for her to be able to attend the expensive rivate schools she may be considering.</p>
<p>Since Florida has no state income tax, that benefit is not there. Do your currently have a 401K or other type of qualified plan for retirement? That might be the preferable way to go in terms of savings. I agree that for two years with conservative investments, it is not likely to be much of a benefit. Make sure you save under your neme, not hers because her assets will be assessed 20% whereas yours will be 5.6% over your allowance.</p>
<p>Agree that tying your hands with a 529 is probably not necessary, but keep assets in your name, not child, for FAFSA purposes. I think some retirement assets have provisions for tax free withdrawals for educational purposes, but consult an expert for sure. Any specific out of state schools in mind, since FAFSA compared to Profile might make a difference.</p>
<p>Thank you! I will look into the retirement acct options. I hadn’t thought about the possibility of being allowed to withdrawal for school expenses.</p>
<p>Also those contributions already in those accounts are not included as assets even for the parents. If your child has earned income, he can open a Roth ira, I believe. Do research these things carefully, as there are a lot of things that need to be checked against ones personal situation.</p>
<p>Thank you again. I have been reading up on the idea of using $ in a retirement acct for college expenses. We can get a 403b or 457b through work, which sounds like can work well for that. Definitely looking into it further!</p>
<p>Just know that any contribution to a pre-tax retirement account in the year before your child will start college will be added back into your AGI for finaid.</p>
<p>Does your 529 college plan become part of EFC or 529 is off the EFC?</p>
<p>529 plans are assets reported at parental rate for FAFSA EFC calculations, so they make EFC higher, but not as much as if they were student assets.</p>
<p>Before you put money into a retirement account with the idea of taking it out in a few years for college expenses, talk with a trusted financial advisor first. Retirement accounts are best suited for retirement and there are limitations on how you can take out that money. For example, there is a 5 year rule regarding distributions from a roth ira. I am not an expert on this but I believe it means that you will pay a penalty if you withdraw from a roth ira that has been established in the past 5 years. So setting up a roth in your child’s name may not make sense if you plan to take the money out in two years for school. </p>
<p>Also, I am a firm believer in maximixing your retirement accounts for your retirement. If you take your retirement money to pay for your child’s school, then it is not there for your retirement. You can only put so much each year in those accounts. </p>
<p>Putting the money in the 529 will allow it to be there for your kid, easy to take out - they send the money right to the school.</p>
<p>Also remember that you can’t take money out of the 401kor 403b directly to pay tuition. The exclusion on the penalty for early withdrawal applies only to money taken from an IRA. That means you must roll the money over to an IRA first, then take it out of the IRA to pay the tuition. Seems silly, but that’s how it must be done.</p>
<p>Keep in mind also that if you’re taking it out of one of those accounts (unless it is designated a roth 401k - yes those do exist), it will be taxable and part of your AGI the year you take it out. If the college will recalculate need each year (most do), your withdrawals could result in a higher efc the following year. Money taken from a 529 or a Roth IRA would not add to your AGI, and thus would not impact your EFC</p>