Is Prepaid College Fund a Qualified 529 Expense?

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boglebill
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Is Prepaid College Fund a Qualified 529 Expense?

Post by boglebill » Sun Sep 07, 2014 6:38 pm

This year the Florida Legislature passed a bill to reduce prepaid college fees!!! In 2008 the 4 year university plan ran about 20k. Last year it was over 50k. This bill brings the price back down to about 27k (and back credits certain prepaid plans, wow!). http://www.myfloridaprepaid.com/what-we ... sity-plan/

When the price was going through the roof, we couldn't justify the funding and went with a Fidelity 529. Since the price is down to 27k this year, we are very seriously considering purchasing a full prepaid plan (bird in hand, peace of mind, etc).

So my question ... can I withdraw from the 529 to fund the prepaid plan?

I've tried my best to scour the internet for this specific question. A couple IRS pubs seem related, but I just haven't seen the exact answer to my question.
http://www.irs.gov/publications/p970/ch08.html
http://www.irs.gov/publications/p970/ch ... 1000295037

Grt2bOutdoors
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by Grt2bOutdoors » Sun Sep 07, 2014 7:24 pm

You can withdraw principal contributions to a 529 plan owned by the parent with no penalty, however earnings can not be withdrawn for purposes other than qualified higher educational expenses - paying for a prepaid college fund is not on the list of being qualified. Qualified expenses include: tuition, fees, room and board, computers and peripheral equipment such as a printer that is hooked up to said computer, and books. Sorry, prepaid college fund is not on the list. http://www.irs.gov/uac/529-Plans:-Questions-and-Answers
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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The529guy
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by The529guy » Sun Sep 07, 2014 7:36 pm

Congrats, that sounds like a great deal.

I'm going to disagree with Grt2bOutdoors, based on my reading of Pub 970. From my perspective, looking for prepaid plan expenses on the list of qualified education expenses is comparing apples to oranges. Here's why:
What Is a Qualified Tuition Program

A qualified tuition program is a program set up to allow you to either prepay [Florida Prepaid College Plan], or contribute to an account established for paying [Florida 529 Savings Plan], a student's qualified education expenses at an eligible educational institution.
This suggests that both plans are "Qualified Tuition Plans," right?
Rollovers

Any amount distributed from a QTP [Florida 529 Savings Plan] is not taxable if it is rolled over to another QTP [Florida Prepaid College Plan] for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution.
It sounds like you can do a rollover tax-free, but I would ask the Florida 529 / Prepaid people to hear what they think.

Grt2bOutdoors
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by Grt2bOutdoors » Sun Sep 07, 2014 8:03 pm

The529guy wrote:Congrats, that sounds like a great deal.

I'm going to disagree with Grt2bOutdoors, based on my reading of Pub 970. From my perspective, looking for prepaid plan expenses on the list of qualified education expenses is comparing apples to oranges. Here's why:
What Is a Qualified Tuition Program

A qualified tuition program is a program set up to allow you to either prepay [Florida Prepaid College Plan], or contribute to an account established for paying [Florida 529 Savings Plan], a student's qualified education expenses at an eligible educational institution.
This suggests that both plans are "Qualified Tuition Plans," right?
Rollovers

Any amount distributed from a QTP [Florida 529 Savings Plan] is not taxable if it is rolled over to another QTP [Florida Prepaid College Plan] for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution.
It sounds like you can do a rollover tax-free, but I would ask the Florida 529 / Prepaid people to hear what they think.
You can disagree, but it's pretty clear the OP asked "can I withdraw to fund", semantics perhaps. A rollover is not an outright withdrawal, it is the plan to plan transfer of funds. You are offering another option - the rollover which may or may not be permissible under current regulations.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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boglebill
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by boglebill » Sun Sep 07, 2014 8:49 pm

I would like to amend my post to state "withdraw or rollover to fund".

Thanks for both your input!
Sounds like a call to FL Prepaid is first on my to do list.
When I purchased a plan in 2009 they weren't very helpful, almost to the point of being misleading.
I'll have to get a second opinion on what they say.

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The529guy
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by The529guy » Sun Sep 07, 2014 10:16 pm

Grt2bOutdoors wrote:
The529guy wrote:Congrats, that sounds like a great deal.

I'm going to disagree with Grt2bOutdoors, based on my reading of Pub 970. From my perspective, looking for prepaid plan expenses on the list of qualified education expenses is comparing apples to oranges. Here's why:
What Is a Qualified Tuition Program

A qualified tuition program is a program set up to allow you to either prepay [Florida Prepaid College Plan], or contribute to an account established for paying [Florida 529 Savings Plan], a student's qualified education expenses at an eligible educational institution.
This suggests that both plans are "Qualified Tuition Plans," right?
Rollovers

Any amount distributed from a QTP [Florida 529 Savings Plan] is not taxable if it is rolled over to another QTP [Florida Prepaid College Plan] for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse). An amount is rolled over if it is paid to another QTP within 60 days after the date of the distribution.
It sounds like you can do a rollover tax-free, but I would ask the Florida 529 / Prepaid people to hear what they think.
You can disagree, but it's pretty clear the OP asked "can I withdraw to fund", semantics perhaps. A rollover is not an outright withdrawal, it is the plan to plan transfer of funds. You are offering another option - the rollover which may or may not be permissible under current regulations.
Thank you for your clarification. In fact, I believe I am offering the very same "outright withdrawal" option.

The terms "withdraw" and "withdrawal" do not appear in Publication 970, Chapter 8, Qualified Tuition Program (QTP). QTPs have "distributions," which some might call "outright withdrawals." However, these distributions have the potential to become rollovers if "paid to another QTP within 60 days" (see quotation above).

I think we can all agree that saving for a child's education is a noble endeavor.

letsgobobby
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by letsgobobby » Sun Sep 07, 2014 10:19 pm

If Florida will accept it then you are permitted to transfer the assets from the 529 to the prepaid plan, which is just another 529.

avalpert
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by avalpert » Mon Sep 08, 2014 10:24 am

Grt2bOutdoors wrote:
You can disagree, but it's pretty clear the OP asked "can I withdraw to fund", semantics perhaps. A rollover is not an outright withdrawal, it is the plan to plan transfer of funds. You are offering another option - the rollover which may or may not be permissible under current regulations.
It need not be a direct plan to plan transfer of funds to be a rollover - you can take the funds as long as you complete the deposit into another qualified plan within 60 days. This certainly would count as a qualified plan.

FLBuckeye
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by FLBuckeye » Sat Nov 30, 2019 3:11 pm

Did you get a definitive answer on this? I've seen a few forums where people have asked the question and they seemed like they were going to through with the transfer (or withdrawal and redeposit in the 60 day window) but I've never seen any final verdicts. I've read that FL Prepaid doesn't allow a direct transfer from another state 529 to the Prepaid account. Did you do this? Any hassle with doing it? TIA.

Topic Author
boglebill
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Re: Is Prepaid College Fund a Qualified 529 Expense?

Post by boglebill » Mon Dec 02, 2019 10:37 am

We did not pursue transfer or using 529 funds to pay for Prepaid. Left the existing 529 alone to help with additional expenses.

Here we are, 5 years later, the price of Florida Prepaid remains relatively low. We purchased the plan and feel good about it.

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