Choose wisely. There is only one correct answer to each question.
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1.
How much can you contribute to a Section 529 plan?
The amount varies according to the plan. Each plan is different. Some have very high limits.
2.
Prepaid tuition plans usually invest in _______.
Bonds. Prepaid tuition plans usually invest in state-backed bonds, because they aim only to keep up with rising in-state university costs.
3.
Which of the following will a financial aid office consider most important?
Your income. Financial aid offices consider this the most important of all these options.
4.
Money in a Coverdell education savings account is intended for educational use and cannot legally be used for anything else.
True. This is its intended use.
5.
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.
6.
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.
7.
Emily withdrew $10,000 from her traditional IRA with the intention of using it to pay for her college expenses. But after the withdrawal, she decided to put the money toward a car. Because she originally intended to use the money for college, she won't be charged a penalty.
False. The intention does not matter. Only the actual use matters. Therefore, she will be charged a penalty.
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.
