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1.
Assuming they are used for qualified educational purposes, withdrawals from a Coverdell education savings account are _______.
Tax-free. Contributions are taxable, but qualified withdrawals are tax-free.
2.
With a prepaid tuition plan, you can control what the plan invests in.
False. The state controls what the plan invests in.
3.
What's the biggest drawback to a Uniform Gift to Minors Act account?
You eventually surrender control of the account to the recipient. You can contribute much more than $500 each year, and withdrawals are taxed at the recipient's rate. However, the recipient gains control of the account. If she doesn't want to spend the proceeds on college, she doesn't have to.
4.
When choosing a college-savings plan, you want _______.
Both of the above. The new crop of college-savings plans provide both a variety of return possibilities and tax savings. Evaluate both when choosing a plan.
5.
When it comes to using a traditional IRA to pay for college expenses, acceptable uses include _______.
All of the above. For room and board, however, students must be enrolled at least part-time.
6.
The IRS gets to decide how you spend the money in your Roth IRA.
False. Though the IRS sets restrictions on Roth IRA use, ultimately you get to decide how to spend the money in it.
7.
Section 529 plans are sponsored by _______.
States. States set contribution limits and investment guidelines that the plans must follow.
8.
As time draws closer to when your student enters college, your college savings plan for him should probably _______.
Shift into less-volatile assets. Normally, as you reach a goal that you have been financing for a long, long time with high-risk investments, the danger of it recovering from a fall is very high. That's why advisors recommend shifting your holdings to safer investments, such as short-term bond mutual funds. Such funds would weather a downturn rather well.
