PFS Education Planning & Financial Analysis

Question 1

What is the maximum annual contribution per beneficiary to a Coverdell Education Savings Account (ESA)?

Accepted Answer

$2,000

Answer

$500

Answer

$5,000

Answer

No statutory limit

Question 2

A 529 college savings plan's primary federal tax advantage is:

Accepted Answer

Tax-free growth and tax-free withdrawals for qualified education expenses

Answer

A federal income tax deduction for contributions

Answer

A federal tax credit equal to 20% of contributions

Answer

Exclusion of contributions from all gift tax rules

Question 3

The 529 plan 'superfunding' strategy (5-year gift tax averaging) allows a contributor to:

Accepted Answer

Front-load up to 5 years' worth of annual gift tax exclusions into a 529 in one year

Answer

Contribute unlimited amounts without any gift tax consequences

Answer

Deduct large lump-sum contributions from federal income taxes

Answer

Transfer excess 529 funds to a Roth IRA tax-free

Question 4

UGMA/UTMA custodial accounts differ from 529 plans most significantly because UGMA/UTMA assets:

Accepted Answer

Become the minor's unrestricted property at the age of majority

Answer

Can only be used for qualified education expenses

Answer

Offer superior income tax treatment compared to 529 plans

Answer

Are excluded from FAFSA financial aid calculations

Question 5

Under the FAFSA formula, student-owned assets are assessed at what rate versus parent-owned assets?

Accepted Answer

A higher rate—20% for student assets vs. up to 5.64% for parent assets

Answer

The same rate as parent assets (up to 5.64%)

Answer

A lower rate—5% for students vs. 20% for parents

Answer

Student assets are fully excluded from the Expected Family Contribution

Question 6

If a 529 plan beneficiary receives a scholarship, the account owner may withdraw an amount equal to the scholarship:

Accepted Answer

With ordinary income tax on earnings but without the 10% penalty

Answer

With both income tax and the 10% penalty on earnings

Answer

Completely tax-free and penalty-free in all circumstances

Answer

Only if done within 60 days of the scholarship award