AFC Savings Strategies and Emergency Fund Planning 2

Question 1

Which savings vehicle is specifically designed for education expenses and offers tax-free growth when funds are used for qualified education costs?

Accepted Answer

529 Plan

Answer

A 529 Plan offers tax-free growth and tax-free withdrawals when funds are used for qualified education expenses such as tuition, fees, and room and board.

Question 2

A Health Savings Account (HSA) requires the account holder to be enrolled in which type of plan?

Accepted Answer

A High-Deductible Health Plan (HDHP)

Answer

To contribute to an HSA, an individual must be enrolled in a qualified High-Deductible Health Plan (HDHP) and cannot have other disqualifying health coverage.

Question 3

A Certificate of Deposit (CD) differs from a regular savings account primarily because:

Accepted Answer

CDs require a fixed term and typically penalize early withdrawal

Answer

CDs require funds to remain deposited for a fixed term (e.g., 6 months, 1 year), and withdrawing funds early typically results in an interest penalty, which is the tradeoff for their higher guaranteed rate.

Question 4

Which of the following savings vehicles typically provides the HIGHEST liquidity combined with federal deposit insurance?

Accepted Answer

High-yield online savings account

Answer

A high-yield online savings account is FDIC-insured and allows immediate access to funds, combining federal deposit protection with high liquidity—making it the best choice among these options.

Question 5

A money market account (MMA) at a bank typically differs from a standard savings account in that it:

Accepted Answer

Often requires a higher minimum balance and may offer limited check-writing privileges

Answer

Money market accounts typically require higher minimum balances and often offer check-writing or debit card privileges while usually paying higher interest rates than standard savings accounts.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Savings Strategies and Emergency Fund Planning 2