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1.
When using a traditional IRA to pay for qualified educational expenses, how much is the early withdrawal penalty?
There is none. As long as the withdrawal is for qualified educational expenses, there will not be an early withdrawal penalty. However, you may still have to pay taxes on them.
2.
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.
3.
Prepaid tuition plans let you lock in the cost of college at _______.
Today's prices. One of the chief attractions of prepaid tuition plans is how they lock in college costs at current prices.
4.
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.
5.
Section 529 plans are sponsored by _______.
States. States set contribution limits and investment guidelines that the plans must follow.
6.
If you withdraw money from your Roth IRA for college expenses, you might still have to pay taxes on them.
True. Any earnings that have built up in your account will be taxed. The original contributions in the account will not be taxed, as they were already taxed in the year you put them in.
7.
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.
8.
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.
