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Florida offering new college savings plan

The new plan has five investment options and will be offered alongside the popular prepaid tuition program.

By HELEN HUNTLEY, Times Staff Writer

© St. Petersburg Times
published October 30, 2002


The state of Florida will roll out its new college savings plan Nov. 18, offering families another tax-free way to cover the rising cost of higher education.

The Florida College Investment Plan will feature five investment options similar to mutual funds. It will be offered alongside the popular Florida Prepaid College Program, which has attracted nearly 500,000 participants and offers a way to pay tomorrow's tuition at today's prices.

The investment plan will be open to residents of any state for use at any accredited college, including some overseas.

Many families are expected to use both plans, particularly considering that existing prepaid contracts cannot be rolled over to the investment plan. Both qualify as 529 plans, taking their name from a section of the IRS code.

The investment plan's big attraction is that it is more flexible and can be used to set aside a lot more money than the prepaid plan, all of it sheltered from income taxes. Contributions to the investment plan will start at $25, with a maximum total contribution of $283,000 per participant.

The existing prepaid program covers tuition at a state university or community college, with optional contracts available to cover local fees and dormitory rental. It can be used at private or out-of-state colleges but with limitations.

The new investment plan can be used to cover the same items as the prepaid program plus other expenses, including books, meal plans, required computers and off-campus housing. It will be especially beneficial for families of children attending private colleges and out-of-state colleges, where tuition is much more expensive than it is at Florida's public colleges. The plan also can be used to cover graduate school costs.

The investment plan offers both the promise of greater returns and the risk of losses because the value of the account will vary with the performance of the options selected.

The investment options include an all-stock account, an all-bond account, a money-market account and two types of balanced accounts. One offers a 50-50 stock-bond split, while the other adjusts the stock-bond mix to become more conservative as the student approaches college age. Participants also can put together their own combinations of the five options.

The state is contracting for money-management services with Trusco Capital Management, U.S. Trust Company of New York, Deusche Asset Management and Northern Trust Investments.

The new plan will compete against similar savings plans offered by other states, usually in conjunction with a brokerage firm or mutual fund company.

Withdrawals from all 529 plans are tax-free if they are used to pay college expenses. Other withdrawals from the investment plan are subject to taxes and a penalty on the investment earnings. Prepaid participants who want to drop out of that plan can cash out, but if they do, they will not receive any interest.

The investment plan will have a $50 one-time application fee, discounted to $30 for current prepaid plan participants, plus an annual management fee of 0.75 percent.

Enrollment in the investment plan will be open on a continuous basis. The prepaid program has an annual enrollment period, which this year is Nov. 18 through Jan. 31. Prices for this year's contracts have not yet been announced, but the cost of a four-year university tuition plan for a newborn is expected to be $8,241 if bought with a lump sum. Installment plans also are available.

A spokeswoman for the state said details about the new plans are not yet available but should be by next week on the Internet (www.florida529plans.com) or by calling 1-(800) 552-4723.

-- Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.

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