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Questions and Answers
- Mateo Hermosillo would like to save money for his 10-year-old daughter's college tuition costs. She has her heart set on a small liberal arts school with a growing reputation in the arts. His biggest concern is the potential increase in cost over the next several years. The program best suited to hedge against the increasing cost of college tuition at the school is
A. a 529 prepaid tuition program
B. a 529 college savings program
C. a Coverdell ESA account
D. a custodial account in the child's name
- Your customer, Leo Hernandez, has been saving money in 529 college savings plans for his three nephews. The oldest nephew is awarded an athletic scholarship valued at $15,000 at a major university. Leo may do any of the following except
A. withdraw earnings up to the value of the scholarship, tax free
B. transfer the account to one of the brothers
C. withdraw the value of the scholarship penalty free
D. leave the money in the account for that nephew's future use
- Which of the following does not have regulatory jurisdiction over the structure or sale of 529 plans?
A. SEC
B. IRS
C. MSRB
D. Department of Education
- An investment established by states to provide other government entities such as cities or counties a place to invest funds short term is
A. an FDIC
B. an ABLE
C. an LGIP
D. a REPO
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- All of the following are true for an Achieving a Better Life Experience account except
A. the account must be opened before the beneficiary turns 26
B. the account owner and the beneficiary must be disabled
C. the income is tax free
D. the onset of the disability must have occurred before the owner turned 26
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Study Notes
Saving for College
- Mateo Hermosillo aims to save for his daughter's college tuition at a small liberal arts school.
- Concern revolves around potential increases in tuition costs over time.
- The most suitable program to manage rising costs is a 529 prepaid tuition program.
529 College Savings Plans
- Leo Hernandez has been contributing to 529 plans for his three nephews.
- The oldest nephew receives a $15,000 athletic scholarship at a major university.
- Leo can withdraw the value of the scholarship penalty-free.
- Other options available include transferring the account or leaving funds for future use.
- He cannot withdraw earnings up to the scholarship value tax-free.
Regulatory Jurisdiction
- Regulatory authorities for 529 plans include:
- SEC (Securities and Exchange Commission)
- IRS (Internal Revenue Service)
- MSRB (Municipal Securities Rulemaking Board)
- The Department of Education does not have regulatory jurisdiction over the structure or sale of 529 plans.
Local Government Investment Programs
- Local government investment programs (LGIPs) are created by states for other governmental entities to manage short-term investments.
- Examples of similar investment structures are FDIC (Federal Deposit Insurance Corporation), ABLE (Achieving a Better Life Experience), and REPO (Repurchase Agreement).
Achieving a Better Life Experience (ABLE) Accounts
- ABLE accounts allow individuals with disabilities to save and invest without losing eligibility for certain government benefits.
- Key points about ABLE accounts:
- They must be opened before the beneficiary turns 26.
- The account owner and beneficiary must both be disabled.
- Income generated in these accounts is tax-free.
- Disability onset for the beneficiary must happen before the age of 26 for eligibility; this aspect is important as it disqualifies those with later-onset disabilities.
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Description
Test your knowledge on college tuition savings programs by choosing the best option to hedge against increasing costs. Learn about different savings accounts like 529 plans, Coverdell ESA, and custodial accounts.
