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1.
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.
2.
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.
3.
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.
4.
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.
5.
With a prepaid tuition plan, you can control what the plan invests in.
False. The state controls what the plan invests in.
6.
Who administers a Section 529 plan?
An investment company. An investment company of the state's choosing administers them.
7.
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.
8.
When it comes to qualifying for financial aid, how much money you earn every year will be more important to a financial aid office than your stock portfolio.
True. Financial aid offices consider income more heavily.
