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1.
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.
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.
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.
4.
Who administers a Section 529 plan?
An investment company. An investment company of the state's choosing administers them.
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.
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.
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.
8.
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.
