Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
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.
4.
Who administers a Section 529 plan?
An investment company. An investment company of the state's choosing administers them.
5.
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.
6.
With a prepaid tuition plan, you can control what the plan invests in.
False. The state controls what the plan invests in.
7.
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.
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.
