FPQP Education Planning 1 — Questions and Answers
Question 1: Which of the following accounts offers a tax-free growth and tax-free withdrawal benefit specifically for qualified education expenses?
- Traditional IRA
- 529 Plan (Correct answer)
- UGMA Account
- Coverdell ESA
Correct answer: 529 Plan
529 plans provide tax-free growth and tax-free withdrawals when funds are used for qualified education expenses.
Question 2: A Coverdell Education Savings Account (ESA) allows annual contributions up to:
- $500 per beneficiary
- $1,000 per beneficiary
- $2,000 per beneficiary (Correct answer)
- $5,000 per beneficiary
Correct answer: $2,000 per beneficiary
The annual contribution limit for a Coverdell ESA is $2,000 per beneficiary from all contributors combined.
Question 3: Which of the following is NOT a qualified education expense for a 529 plan?
- Tuition and fees
- Room and board
- Transportation to campus (Correct answer)
- Required textbooks
Correct answer: Transportation to campus
Transportation costs are not considered a qualified education expense under 529 plan rules; tuition, fees, room/board, and required books are.
Question 4: The American Opportunity Tax Credit (AOTC) provides a maximum annual credit of:
- $1,000
- $1,500
- $2,000
- $2,500 (Correct answer)
Correct answer: $2,500
The AOTC provides a maximum annual credit of $2,500 per eligible student for the first four years of post-secondary education.
Question 5: Under the SECURE 2.0 Act, unused 529 plan funds can be rolled over to which type of account after 15 years?
- Traditional IRA
- Health Savings Account
- Roth IRA (Correct answer)
- 403(b) plan
Correct answer: Roth IRA
SECURE 2.0 allows rollovers of unused 529 funds to the beneficiary's Roth IRA after the account has been open for 15 years, subject to annual Roth contribution limits.
Question 6: The Lifetime Learning Credit (LLC) differs from the AOTC in that the LLC:
- Has a higher income phase-out range
- Is available for an unlimited number of years (Correct answer)
- Provides a 100% credit on all expenses
- Is refundable up to 40%
Correct answer: Is available for an unlimited number of years
Unlike the AOTC which is limited to four tax years per student, the Lifetime Learning Credit can be claimed for an unlimited number of years.
Question 7: Which financial aid form is required for federal student aid eligibility?
- CSS Profile
- FAFSA (Correct answer)
- IRS Form 8863
- Form 1098-T
Correct answer: FAFSA
The Free Application for Federal Student Aid (FAFSA) is the required form for determining eligibility for federal grants, loans, and work-study programs.
FPQP Education Planning 1
Which of the following accounts offers a tax-free growth and tax-free withdrawal benefit specifically for qualified education expenses?