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Portfolios 210: How to Invest for College

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1.
When choosing a college-savings plan, you want _______.
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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.
2.
As time draws closer to when your student enters college, your college savings plan for him should probably _______.
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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.
3.
With a prepaid tuition plan, you can control what the plan invests in.
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False. The state controls what the plan invests in.
4.
The IRS gets to decide how you spend the money in your Roth IRA.
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False. Though the IRS sets restrictions on Roth IRA use, ultimately you get to decide how to spend the money in it.
5.
What's the biggest drawback to a Uniform Gift to Minors Act account?
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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.
6.
How much can you contribute to a Section 529 plan?
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The amount varies according to the plan. Each plan is different. Some have very high limits.
7.
When using a traditional IRA to pay for qualified educational expenses, how much is the early withdrawal penalty?
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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.
Assuming they are used for qualified educational purposes, withdrawals from a Coverdell education savings account are _______.
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Tax-free. Contributions are taxable, but qualified withdrawals are tax-free.