407 Ch 7.

1. Which of the following statements regarding Coverdell ESAs is(are) correct? I. Coverdell ESAs are designed to offer tax benefits to individuals who wish to save money for a child or grandchild's qualified education expenses. II. Money withdrawn from a Coverdell ESA remains free from tax or penalty whether or not the funds are used for higher education expenses. A. I only B. II only C. Both I and II D. Neither I nor II

A. I only

1. All of the following statements regarding financial aid programs for education funding are correct EXCEPT A. a Pell Grant is a grant from the federal government awarded to undergraduate students who have not earned a bachelors or professional degree B. the EFC calculation, which is based on one's SAT score, is used to determine a student's eligibility for a Pell Grant and how much is awarded to a student C. one type of Stafford loan is the Direct Stafford loan that is provided to the student directly from the U.S. Department of Education Direct Stafford Loans can be repaid under several payment plans.

B. the EFC calculation, which is based on one's SAT score, is used to determine a student's eligibility for a Pell Grant and how much is awarded to a student

1. Which of the following statements regarding education funding is(are) correct? I. A school's loan default rate is important for parents to know because schools with high default rates may not be eligible to obtain federal aid for certain federal financial assistance programs. II. The loan default rate is the percentage of students who attend the school, obtain federal student loans, and ultimately fail to repay the loan in a timely fashion. A. I only B. II only C. Both I and II D. Neither I nor II

C. Both I and II

1. Which of the following statements regarding investment strategies to accomplish education funding goals is(are) correct? I. The time horizon is probably the most important factor (besides risk tolerance) to consider in deciding what securities to invest in, how much to invest, and when to invest. II. QTPs generally require a decrease in the risk level of investments the closer the child gets to the beginning of college. A. I only B. II only C. Both I and II D. Neither I nor II

C. Both I and II

1. Which of the following statements regarding the Roth IRA is(are) correct? I. The Roth IRA does not provide for tax deductions for any contributions. II. Contributions grow tax free within the Roth IRA. A. I only B. II only C. Both I and II D. Neither I nor II

C. Both I and II

1. All of the following statements regarding financial aid programs for education funding are correct EXCEPT A. consolidation loans provide borrowers with a way to consolidate various types of federal student loans that have separate repayment schedules into one loan B. the Federal Supplemental Education Opportunity Grant (FSEOG) is a campus-based student financial aid grant awarded to undergraduate students with low EFCs that gives priority to students who receive Federal Pell Grants C. the Federal Work-Study Program is a campus-based student financial aid program that enables undergraduate and graduate students to earn money for education expenses D. to qualify for state government aid, states require students to be residents of the state and attend a college or university in that state

C. the Federal Work-Study Program is a campus-based student financial aid program that enables undergraduate and graduate students to earn money for education expenses

1. All of the following statements regarding education funding are correct EXCEPT A. a student must submit a Free Application for Federal Student Aid (FAFSA) form to become eligible for federal financial aid B. the expected family contribution (EFC) is a formula that indicates how much of a student's family's resources ought to be available to assist in paying for the student's college education C. factors used in calculating the EFC include taxable and nontaxable income, assets, and benefits, such as unemployment and Social Security D. a common method for reducing a family's EFC is creating a trust for the parents and increasing the family's estate

D. a common method for reducing a family's EFC is creating a trust for the parents and increasing the famil

1. All of the following statements regarding education funding are correct EXCEPT A. during the goal-setting process, the financial planner must forecast anticipated tuition and related expenses by first determining current tuition and related expenses for the schools in the area and for the schools the parents believe would be appropriate for the child B. related expenses must be adjusted for inflation until the child enters college C. once tuition and related costs have been identified and adjusted for inflation, the estimated four-year cost of a college education can be determined D. depending on how much money will be available when the child enters college, a formula, called anticipated financial contribution (AFC), can be used to determine how much money must be invested now or over time to meet the amount of savings necessary for college

D. depending on how much money will be available when the child enters college, a formula, called anticipated financial contribution (AFC), can be used to determine how much money must be invested now or over time to meet the amount of savings necessary for college

1. All of the following statements regarding education funding are correct EXCEPT A. QTPs allow individuals to participate in prepaid tuition plans whereby tuition credits are purchased for a designated beneficiary for payment or waiver of higher education expenses, or participate in savings plans whereby contributions of money are made to an account to eventually pay for higher education expenses of a designated beneficiary B. prepaid tuition plans are plans where prepayment of college tuition is allowed at current prices for future enrollment C. a savings plan is a type of QTP where the owner of the account contributes cash to the account so that the contributions can grow tax deferred D. one of the disadvantages of QTPs is that the owner/contributor shares control of the account with the student/beneficiary

D. one of the disadvantages of QTPs is that the owner/contributor shares control of the account with the student/beneficiary

1. All of the following statements regarding education funding are correct EXCEPT A. the American Opportunity Tax Credit is a tax credit available for qualified tuition, course materials, and enrollment fees incurred in the first 4 years of post-secondary education for the taxpayer, spouse, or dependent B. the Lifetime Learning Credit is a tax credit available to pay for tuition and enrollment fees for undergraduate, graduate, or professional degree programs C. if used to pay for qualified higher education expenses at an eligible institution or state tuition plan, Series EE Savings Bonds offer significant tax savings D. the Uniform Gift to Minors Act (UMGA) allows parents the option to put assets in a custodial account for a child once the child exceeds the age of 18 without incurring the kiddie tax on earnings

D. the Uniform Gift to Minors Act (UMGA) allows parents the option to put assets in a custodial account for a child once the child exceeds the age of 18 without incurring the kiddie tax on earnings

A Coverdell ESA can be established for any child under the age of 21 by a parent, grandparent, other family members or friends, or even by the child

False

A Federal Pell Grant is a grant from the federal government that requires repayment.

False

A Federal Perkins loan is provided to undergraduate and graduate students that have no financial need.

False

College Savings Plans are similar to Coverdell ESAs, and have the same attributes, rules, and tax ramifications.

False

Coverdell ESAs currently permit up to $5,500 in annual contributions, whereas QTPs allow large contributions reaching as high as $100,000 and above.

False

In 2016, Roth IRAs allow up to $5,000 of annual contributions for individuals below the age of 50

False

Interest paid on student loans for undergraduate and graduate education may not be deducted as an adjustment to the taxpayer's AGI

False

Many state universities and all private colleges allow for prepayment of tuition at current prices for future enrollment.

False

Most financial aid packages do not depend upon the financial need of the student

False

No vehicles are available that allow the family or taxpayer who bear the brunt of education expenses to realize tax savings and benefits.

False

One of the drawbacks of Coverdell ESAs is that, if the beneficiary/child takes a tax-free distribution from the ESA, the beneficiary/child cannot also receive either the American Opportunity Tax Credit or Lifetime Learning Credit in the same year.

False

Only a few forms of scholarships are awarded by groups that are separate and apart from the school, state, or federal government.

False

Parents should be reminded that families are in a better position to fund college expenses over a short time period.

False

Prepaid Tuition Plans are plans where prepayment of tuition is allowed at inflated prices for enrollment in the future

False

QTPs generally require an increase in the risk level of investments the closer the child gets to the targeted year to begin college

False

Repayment of Stafford loans begins after a grace period of 3 years following graduation, leaving school, or dropping below half-time enrollment.

False

The Federal Supplemental Education Opportunity Grant (FSEOG) is awarded to undergraduate students with high EFCs.

False

The Lifetime Learning Credit can only be claimed for a limited number of years

False

The owner-contributor in a college savings plan has the right to specifically direct which individual securities will be purchased within the plan

False

There is a maximum EFC allowed to qualify for financial aid

False

A common method for reducing a family's EFC is creating a trust for the child and diminishing the family's estate through gifts.

True

A consolidation loan provides borrowers with a way to consolidate various types of federal student loans with separate repayment schedules into one loan.

True

A subsidized loan is based on the financial need of the student as determined by the EFC formula.

True

Coverdell ESAs are designed to offer tax benefits to those individuals who wish to save money for a child/grandchild's higher education expenses. -

True

Federal work-study programs enable undergraduate and graduate students to earn money for education expenses through jobs that pay at least minimum wage.

True

If a portion or all of the withdrawal from a QTP is spent on anything other than qualified higher education expenses, the owner-contributor will be taxed at her own tax rate on the earnings portion of the withdrawal.

True

If used to pay for qualified higher education expenses at an eligible institution or state tuition plan, Series EE Savings Bonds provide significant tax savings, that is, no federal income tax on the interest.

True

Most states have programs that are similar to federal student financial aid.

True

Once expenses have been identified and adjusted for inflation, one can determine the estimated 4-year cost of a college education

True

QTPs allow individuals to either participate in Prepaid Tuition Plans whereby tuition credits are purchased for a designated beneficiary for payment or waiver of higher education expenses, or participate in College Savings Plans whereby contributions of money are made to an account to eventually pay for higher education expenses of a designated beneficiary.

True

QTPs are attractive to states because they can provide incentives to residents and nonresidents to invest in higher education and into that state's educational system.

True

QTPs provide significant tax savings, allow for substantial investments for a child's education, and provide a tool for avoidance of gift and estate taxes.

True

The American Opportunity Tax Credit is a tax credit available for qualified tuition, enrollment fees, and course materials incurred in the first 4 years of post-secondary education for the taxpayer, spouse, or dependent.

True

The EFC formula takes into account various factors, including the number of children in private school or college, the size of the family, the amount of years until the parent's retirement, and large financial burdens, such as medical bills.

True

The EFC indicates how much of a student's family's resources ought to be available to assist in paying for the student's education

True

The Lifetime Learning Credit is a tax credit available to pay for tuition and enrollment fees for undergraduate, graduate, or professional degree programs

True

The Stafford loan is the primary type of financial aid provided by the U.S. Department of Education.

True

The U.S. Armed Forces have numerous programs and scholarships available to pay for tuition

True

The Uniform Gift to Minors Act (UGMA) allows parents the option to put assets in a custodial account for a child

True

The financial aid process is initiated by filling out financial aid forms available from high schools, the U.S. Department of Education, or from the college the student will attend

True

Under the Employer's Educational Assistance Program, an employer can pay for an employee's undergraduate or graduate tuition, enrollment fees, books, supplies, and equipment while these employer benefits are excluded from the employee's income up to $5,250.

True

When formulating a college education savings plan, one of the most significant considerations is how much time exists before the child enters college.

True