Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
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.
4.
What is the current contribution limit to a Coverdell education savings account?
$2,000. This is the current limit.
5.
What kinds of investments can you transfer to an UGMA account?
All of the above. You are allowed to transfer any of these to an UGMA account.
6.
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.
7.
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.
8.
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.
