PFS Student Learning & Development 3 — Questions and Answers
Question 1: Which of the following expenses is NOT a qualified expense for 529 plan distributions used for K-12 education?
- Tuition at a private elementary school
- Books and supplies for K-12
- Room and board for K-12 (Correct answer)
- After-school tutoring at a K-12 institution
Correct answer: Room and board for K-12
For K-12 purposes, 529 qualified expenses are limited to $10,000 per year in tuition only; room and board is not included.
Question 2: An employer provides $6,000 in annual educational assistance benefits under a §127 plan. How much is excludable from the employee's gross income?
- $0 — all is taxable
- $2,500
- $5,250 (Correct answer)
- $6,000
Correct answer: $5,250
Under IRC §127, up to $5,250 per year in employer-provided educational assistance may be excluded from an employee's gross income.
Question 3: Which FAFSA data is used to calculate the Student Aid Index (SAI) for dependent students?
- Student income and assets only
- Parent income and assets only
- Both student and parent income and assets (Correct answer)
- Grandparent income and assets
Correct answer: Both student and parent income and assets
The SAI for dependent students is based on both the student's and parents' income and assets reported on the FAFSA.
Question 4: A grandparent-owned 529 plan distribution was previously required to be reported on the student's FAFSA as untaxed income. Under FAFSA Simplification Act changes effective 2024-25, how is this treated?
- Still reported and reduces aid dollar-for-dollar
- Reported at 50% of value
- No longer reported on FAFSA at all (Correct answer)
- Reported only if over $10,000
Correct answer: No longer reported on FAFSA at all
The FAFSA Simplification Act eliminated the question about cash support, so grandparent 529 distributions no longer reduce a student's aid eligibility.
Question 5: What is the income phase-out range for single filers claiming the Lifetime Learning Credit (LLC) in 2024?
- $0–$10,000
- $40,000–$60,000
- $80,000–$90,000 (Correct answer)
- $56,000–$66,000
Correct answer: $80,000–$90,000
For 2024, the LLC phases out for single filers with MAGI between $80,000 and $90,000.
Question 6: Under Public Service Loan Forgiveness (PSLF), how many qualifying monthly payments must a borrower make before the remaining Direct Loan balance is forgiven?
- 60 payments
- 120 payments (Correct answer)
- 180 payments
- 240 payments
Correct answer: 120 payments
PSLF requires 120 qualifying monthly payments while working full-time for a qualifying public service employer.
Question 7: A client asks about the student loan interest deduction. What is the maximum deduction allowed per year for qualifying student loan interest paid?
- $1,000
- $2,000
- $2,500 (Correct answer)
- $4,000
Correct answer: $2,500
Taxpayers may deduct up to $2,500 in student loan interest per year, subject to income phase-out limits.
PFS Student Learning & Development 3
Which of the following expenses is NOT a qualified expense for 529 plan distributions used for K-12 education?