Education Planning Flashcards

When calculating Expected Family Contribution (EFC) under the federal methodology, which of the following is treated most favorably (lowest impact on aid eligibility)?

Answer: Assets in a 529 plan owned by the parent

529 plans owned by parents are assessed at a maximum rate of 5.64% of assets, while student assets are assessed at 20%, making parent-owned 529s more favorable for aid purposes.

The Section 529 plan contribution limit is based on:

Answer: Individual state limits, often based on projected education costs

529 plan aggregate contribution limits are set by individual states and are based on the projected cost of education, typically ranging from $235,000 to over $500,000.

A student loan interest deduction allows taxpayers to deduct up to how much in qualified student loan interest per year?

Answer: $2,500

Taxpayers may deduct up to $2,500 in student loan interest per year, subject to income phase-out limits.

Which of the following best describes a Uniform Transfers to Minors Act (UTMA) account used for education funding?

Answer: The minor gains full control of assets at the age of majority

UTMA accounts are irrevocable gifts; the minor gains full legal control over the assets at the age of majority (18 or 21 depending on the state).

Which of the following is an advantage of a prepaid tuition plan over a standard 529 savings plan?

Answer: Protection against tuition inflation at participating schools

Prepaid tuition plans lock in today's tuition rates at participating institutions, providing a hedge against future tuition inflation.

The education savings bond program allows taxpayers to exclude U.S. savings bond interest from income when used for education expenses. Which bonds qualify?

Answer: Series EE and Series I bonds issued after 1989

Only Series EE and Series I bonds issued after December 31, 1989, qualify for the education savings bond exclusion program.

When projecting college costs for education planning, a financial planner should primarily use which rate?

Answer: College inflation rate (HEPI)

The Higher Education Price Index (HEPI) specifically measures tuition and college cost inflation, making it more appropriate than general CPI for education planning projections.