Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
With a prepaid tuition plan, you can control what the plan invests in.
False. The state controls what the plan invests in.
3.
Withdrawals from an UGMA account are taxed at whose rate?
The recipient's. Withdrawals from an UGMA account are taxed at the recipient's rate.
4.
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.
5.
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.
6.
If you are using a Roth IRA for college expenses, who will ultimately control who gets to spend the money?
You. Unlike a few other college-savings options, you control the money in a Roth IRA.
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.
