Retirement Plans: Education and Health Savings Plans Review Questions

Which statement about 529 Plans is FALSE? A: Contribution limits are established by each state B: Distributions used to pay for qualified higher education expenses are not federally taxable C: Amounts contributed are generally deductible from federal income tax D: Earnings in the account grow tax deferred

C: Amounts contributed are generally deductible from federal income tax

Which statement is TRUE about Coverdell Education Savings Accounts? A: Contributions are tax deductible; Distributions are taxable B: Contributions are tax deductible; Distributions are not taxable C: Contributions are not tax deductible; Distributions are taxable D: Contributions are not tax deductible; Distributions are not taxable

D: Contributions are not tax deductible; Distributions are not taxable

A customer has a 3-year old child and wishes to begin saving for the kid's college education using a tax advantaged investment. The best investment option to meet the customer's objective is a(n): A: zero-coupon bond investment B: age weighted 529 plan C: Coverdell ESA D: UGMA account

B: age weighted 529 plan

If a distribution from a Coverdell Education Savings Account in a given year exceeds the beneficiary's qualified education expenses in that year, the: A: excess distribution is not taxable B: excess distribution is taxable and a 10% penalty is imposed C: entire distribution is not taxable D: entire distribution is taxable and a 10% penalty tax is imposed

B: excess distribution is taxable and a 10% penalty is imposed

A high-earning individual can open and contribute to all of the following accounts EXCEPT: A: Coverdell ESA B: 401(k) C: 403(b) D: UGMA Account for her niece

A: Coverdell ESA

A customer who earns $150,000 per year wishes to set aside funds for his 12 year old daughter's future college expenses. Which statement is TRUE? A: The customer can open a UTMA account for the daughter to deposit the funds B: The customer cannot open a UTMA account for the daughter to deposit the funds C: The customer can open a Coverdell ESA account for the daughter to deposit the funds D: The customer can open a Coverdell ESA account for the daughter to deposit the funds but any earnings will be taxable since the customer is a "high earner".

A: The customer can open a UTMA account for the daughter to deposit the funds

Section 529 plans are established by the: A: state B: donor C: recipient D: custodian

A: state

The maximum permitted annual contribution to a Coverdell Education Savings Account for a single beneficiary is: A: $2,000 in a single account B: $2,000 total in any number of accounts C: $4,000 in a single account D: $4,000 total in any number of accounts

B: $2,000 total in any number of accounts

Contributions to a Coverdell Education Savings Account must cease when the beneficiary reaches the age of: A: 16 B: 18 C: 21 D: 30

B: 18

Which statement is TRUE about Coverdell ESAs? A: Contributions into the account are tax deductible to the donor B: Assets grow tax-deferred and distributions are not taxable if used for qualified educational purposes C: Any adult, regardless of income level, can open or contribute into the account D: Unexpended funds can be transferred with a 10% transfer tax to another relative in the same or younger generation as the beneficiary

B: Assets grow tax-deferred and distributions are not taxable if used for qualified educational purposes

Which statement is TRUE about changing the beneficiary on a Coverdell Education Savings Account? A: The beneficiary cannot be changed on a Coverdell ESA B: The beneficiary can be changed to any relative of the same or later generation C: The beneficiary can be changed to any relative D: The beneficiary can be changed to another individual attending school

B: The beneficiary can be changed to any relative of the same or later generation

Which statement is TRUE? A: Funds in a 529 plan can only be used for college B: Up to $10,000 in funds in a 529 plan can be used to pay for education below the college level. C: Funds in a Coverdell ESA can only be used for in-state colleges D: Only $10,000 in funds in a Coverdell ESA can be used yearly to pay for education at the college level

B: Up to $10,000 in funds in a 529 plan can be used to pay for education below the college level.

Which statement is TRUE about federal taxation of contributions to 529 plans? A: Contributions are tax deductible to the donor B: Contributions are capped at $10,000 annually C: A 1-time gift of up to 5 times the gift tax exclusion amount can be given that will not be subject to gift tax D: A 1-time gift of up to 10 times the gift tax exclusion amount can be given that will not be subject to gift tax

C: A 1-time gift of up to 5 times the gift tax exclusion amount can be given that will not be subject to gift tax

A single mother has 2 children, ages 5 and 9. She earns $150,000 per year and wishes to open Coverdell ESAs for each child to pay for qualified education expenses. Which statement is TRUE? A: She can open the account for each child and make an annual $2,000 tax-deductible contribution for each B: She can open the account for each child and make an annual $2,000 non tax-deductible contribution for each C: She is prohibited from opening an account for each child because she earns too much D: She is prohibited from opening an account for each child because Coverdell ESAs are only available to married couples with children

C: She is prohibited from opening an account for each child because she earns too much -Single parent: $110,000, couples: $220,000

Under which circumstance can a non-taxable distribution be made from a Section 529 Plan? A: The beneficiary does not go to college B: The beneficiary wants to buy a house C: The beneficiary goes to vocational school D: The beneficiary gets married

C: The beneficiary goes to vocational school

All of the following statements are true about Health Savings Accounts EXCEPT: A: HSAs are only appropriate for those individuals covered by high-deductible health insurance plans B: HSAs can be set up to include dependents of the covered individual C: HSA contributions are tax deductible D: HSA contributions are subject to phase-out when an individual's income exceeds $250,000

D: HSA contributions are subject to phase-out when an individual's income exceeds $250,000

Which statement is FALSE regarding Section 529 Accounts? A: Any adult can open an account for any beneficiary B: Account contributions are not deductible, but earnings build tax-deferred C: Non-taxable distributions may be made to pay for qualified higher education expenses D: Non-taxable distributions may only be made to educational institutions in the state that sponsors the plan

D: Non-taxable distributions may only be made to educational institutions in the state that sponsors the plan

Which statement is FALSE about both Coverdell ESAs and 529 Plans? A: Distributions from both are tax-free when used to pay for qualified education expenses B: Contributions to both are not deductible from federal income tax C: Tax-free distributions from both can be used to help pay for primary school D: There is no limit on the amount that can be contributed into each

D: There is no limit on the amount that can be contributed into each

An individual who has completed college has been working for 9 years and is now 30 years old. He is thinking about returning to school in a few years to complete his masters degree and wants to set up a 529 Plan with himself as the beneficiary. Can he do this? A: No, because the donor and the beneficiary must be different persons in a 529 Plan B: No, because 529 Plans cannot be opened after age 30 C: No, because 529 Plans must have an independent trustee D: Yes

D: Yes

ABLE account distributions are tax-free when used to pay for qualifying: A: lower education expenses B: higher education expenses C: medical expenses D: disability expenses

D: disability expenses

LGIPs marketed by broker-dealers are investment vehicles offered to: A: the general public B: wealthy accredited investors C: major institutional investors D: local governmental entities in that state

D: local governmental entities in that state

Aggregate contributions into 529 plans are: A: subject to dollar limits at both the federal and state level B: not subject to dollar limits at either the federal or state level C: only subject to dollar limits at the federal level D: only subject to dollar limits at the state level

D: only subject to dollar limits at the state level