My son is in his first semester at UF; we have Florida Pre-paid (Tuition only) and he got the Florida Bright Futures Scholarship. The University applied pre-paid first to his Tuition, then Bright Futures covered any remaining fees and his entire dorm contract. We are paying food as we go and plan to withdraw from a 529 for food up to the school's COA estimate.
It appears that a Florida Pre-paid plan / Bright Futures combination excludes the possibility of getting AOTC, since those two combined covered all Tuition and Fees. (this is quite disappointing to me as it appears that I would have been better off just to pay tuition out of pocket and get the AOTC, but now I am stuck with a plan. The earnings on the pre-paid are quite minimal.)
Additionally, because the school applies the pre-paid to tuition first, part of the Bright Future scholarship ends up covering dorm; which I understand makes the scholarship taxable (or at least a majority of it taxable). My son hasn't yet filed a federal return - and only had minimal tutoring income last year - should he file and claim the scholarship? and can he do so if I still list him as a dependent?
The Pre-paid plan seems to be a double-whammy of negatives - I miss out on AOTC and it pushes scholarship into taxable space. Am I seeing that correctly? Anything I can do mitigate that situation?
