FPQP Education Planning 3

Question 1

If a 529 plan distribution is used for non-qualified expenses, the earnings portion of the withdrawal is subject to:

Accepted Answer

Ordinary income tax plus a 10% federal penalty

Answer

Only ordinary income tax

Answer

Only a 10% penalty

Answer

Capital gains tax only

Question 2

Which of the following strategies can help reduce a student's financial aid impact when holding assets in a UTMA account?

Accepted Answer

Transfer assets to a parent-owned 529 plan before applying for aid

Answer

Keep assets in the student's name to lower the assessment rate

Answer

File the FAFSA before the assets are fully transferred

Answer

Withdraw all UTMA funds before the student turns 16

Question 3

Under current tax law, up to how much per year per beneficiary can be withdrawn from a 529 plan tax-free for K-12 tuition?

Accepted Answer

$10,000

Answer

$5,000

Answer

$7,500

Answer

$15,000

Question 4

A 529 plan beneficiary change to a family member of the original beneficiary is:

Accepted Answer

A tax-free rollover if done properly

Answer

A taxable distribution

Answer

Subject to a 10% penalty

Answer

Not permitted under federal law

Question 5

Which of the following education-related expenses qualifies under the American Opportunity Tax Credit (AOTC)?

Accepted Answer

Course-related books, supplies, and equipment

Answer

Room and board

Answer

Transportation costs

Answer

Health insurance required by the school

Question 6

The superfunding (five-year election) strategy for 529 plans allows a lump-sum contribution of up to how much without gift tax consequences?

Accepted Answer

$75,000 per individual contributor

Answer

$50,000 per individual contributor

Answer

$90,000 per individual contributor

Answer

$150,000 per individual contributor

Question 7

Which of the following is TRUE about the Coverdell ESA compared to the 529 plan?

Accepted Answer

Coverdell ESA can be used for K-12 expenses without the $10,000 annual cap

Answer

Coverdell ESA has no income limits for contributors

Answer

Coverdell ESA offers higher contribution limits

Answer

Coverdell ESA funds must be used by age 21 or rolled over