RFC Education Funding Planning 3

Question 1

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

Accepted Answer

$2,000

Answer

The annual Coverdell ESA contribution limit is $2,000 per beneficiary per year, regardless of how many accounts are opened for that child.

Question 2

A Coverdell ESA must be fully distributed by what age to avoid a penalty on earnings?

Accepted Answer

30

Answer

Coverdell ESA funds must be used by the time the beneficiary reaches age 30, or the remaining balance must be transferred to an eligible family member's ESA.

Question 3

An UGMA/UTMA account differs from a 529 plan primarily because:

Accepted Answer

UGMA/UTMA funds are irrevocably transferred to the child and can be used for any purpose

Answer

UGMA/UTMA accounts are custodial accounts where assets become the child's irrevocable property and can be used for any purpose once the child reaches the age of majority.

Question 4

For federal financial aid purposes, UGMA/UTMA assets held by a dependent student are assessed at what rate in the Expected Family Contribution (EFC) calculation?

Accepted Answer

20%

Answer

Student-owned assets such as UGMA/UTMA accounts are assessed at 20% in the EFC calculation, significantly reducing financial aid eligibility.

Question 5

Series EE bonds purchased after 1989 can be redeemed tax-free for education expenses under the Education Savings Bond Program, subject to which of the following conditions?

Accepted Answer

The bond owner must meet income phase-out limits in the year of redemption

Answer

The interest exclusion for Series EE bonds used for education is subject to income phase-out limits applied in the year of redemption, and the bonds must be in the parent's or taxpayer's name.

(RFC) Registered Financial Consultant Practice Test

(RFC) Registered Financial Consultant Practice Test

RFC Education Funding Planning 3