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Portfolios 210: How to Invest for College

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1.
Money in a Coverdell education savings account is intended for educational use and cannot legally be used for anything else.
Choose wisely. There is only one correct answer.
True. This is its intended use.
2.
After you have saved for many years to send your young one to college by investing in high-risk assets such as stocks, you would be wise to shift them to bonds as college gets closer.
Choose wisely. There is only one correct answer.
True. Given that you don't want to risk your growth in a downturn, shifting your gains to bonds or bond mutual funds might be a good idea.
3.
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.
4.
If you are using a Roth IRA for college expenses, who will ultimately control who gets to spend the money?
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You. Unlike a few other college-savings options, you control the money in a Roth IRA.
5.
Section 529 plans are sponsored by _______.
Choose wisely. There is only one correct answer.
States. States set contribution limits and investment guidelines that the plans must follow.
6.
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.
Choose wisely. There is only one correct answer.
False. The intention does not matter. Only the actual use matters. Therefore, she will be charged a penalty.
7.
Prepaid tuition plans usually invest in _______.
Choose wisely. There is only one correct answer.
Bonds. Prepaid tuition plans usually invest in state-backed bonds, because they aim only to keep up with rising in-state university costs.
8.
Which of the following will a financial aid office consider most important?
Choose wisely. There is only one correct answer.
Your income. Financial aid offices consider this the most important of all these options.