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CFP Course Prep 1 > Education Planning > Flashcards

Education Planning Flashcards

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CFP® flashcards
1
Q

Financial Aid:

A

Available from the federal government, which uses a special formula called the federal methodology to determine financial need.

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2
Q

The different government grants and loans available are:

A

Pell Grants
Supplemental Educational Opportunity Grants
Federal Direct/Stafford Loans
Direct PLUS/PLUS Loans
Work-Study Programs

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3
Q

Government grants and loans:

A

Available at subsidized interest rates for students, based upon financial needs.

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4
Q

The rates on Stafford loans are capped at what percentage?

A

8.25%

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5
Q

The government excludes what when determining the expected family contribution?

A

home equity, Retirement plans such as IRAs and 401(k)s, cash valued life insurance, and annuities

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6
Q

How often can you change the beneficiary on a 529 plan?

A

You may change beneficiaries as often as you like, but in order to have a non-taxable and penalty-free change, the new beneficiary must be a member of the family of the prior beneficiary.

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7
Q

_______ are Tax-deferred savings accounts for educational expenses. High contribution limits with potential to “superfund” the account by using 5-years of annual exclusion amounts ($85,000). Available for investment in several states.

A

Section 529 Accounts

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8
Q

_____ are Non-taxable gifts to a beneficiary to pay for college expenses, limited to a $2,000 annual contribution.

A

Coverdell Education Savings Accounts

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9
Q

______ are offered in different denominations. Series EE bonds may be exempt from federal taxes if used to pay for college tuition and fees.

A

Savings Bonds

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10
Q

Other financial sources include ….

A

insurance policies, retirement accounts and home equity loans/lines of credit

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11
Q

Gifts to minors types-

A

Uniform Gift to Minors Account (UGMA)
Uniform Transfers to Minors Account (UTMA)

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12
Q

Transfer at Time of Death:

A

If a custodian passes away, then it depends on state law and the age of the minor for selection of a successor. If the minor should pass away, the assets are passed to his estate.

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13
Q

Uniform Transfers to Minors Account (UTMA):

A

Similar to UGMA, but is expanded to include assets such as real estate, partnerships, and so on.

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14
Q

Uniform Gift to Minors Account (UGMA):

A

Accepted by some states as a form of ownership of assets by a minor. This represents an irrevocable gift to a minor until he or she reaches the age of majority.

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15
Q

Gifts to minors:

A

This type of ownership is an irrevocable gift from a grantor to a beneficiary transferred into a custodial account.
A custodian manages the assets, and the custodian and the grantor can be the same person.
There are tax advantages for the account, but neither the grantor nor the custodian can control what the minor does with the asset once he or she reaches the state’s age of majority.

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16
Q

The law limits contributions to a Coverdell Education Savings Account to _____ per beneficiary per year

A

$2,000

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17
Q

_____ Forward funding available to avoid making taxable gifts.

A

529 Saving Plan

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18
Q

_____ Tuition units are guaranteed to match tuition inflation.

A

529 Prepaid plan

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18
Q

____ allows unlimited use of qualified proceeds.

A

UGMA/UTMA

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19
Q

_____ allows Tax-free qualified withdrawals.

A

Coverdell ESA

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20
Q

American Opportunity Education Credit:

A

Available for parents for tuition and book expenses up to $2,500 a year for each student enrolled in college for the first four years.

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21
Q

Lifetime Learning Tax Credit:

A

Equals 20% of up to $10,000 in higher education costs, for a maximum credit of $2,000 available to taxpayers every year. Cannot be used for the same student in the same year the American Opportunity education credit is taken.

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22
Q

Employment-Related Credits: Credits availed by an employee. They include:

A

Qualified Tuition Reduction
Qualified Educational Expense, and
Qualified Educational Assistance.

23
Q

Student Loan Interest is Deductible up to ____ annually, subject to AGI phase-out amounts, for the student/taxpayer who is responsible for repaying the loan.

A

$2,500

24
Q

To qualify for the American Opportunity Tax Credit…

A

the student must be enrolled on at least a half-time basis in an accredited vocational school, college, or university. You must also pay the student’s tuition and list the student as a dependent on your tax return.

24
Q

Credits such as the ______ and _____ reduce income taxes when used for qualified education expenses.

A

American Opportunity Education Credit and the Lifetime Learning Tax Credit

25
Q

Features of a Coverdell ESA (CESA):

A

Deposits into a CESA are not tax-deductible.

Assets in the CESA need to be withdrawn by the time the student reaches 30.

Deposits to CESAs are limited to $2,000 annually, per beneficiary.

Contributions may be made up to April 15th of the following the calendar year.

26
Q

To be considered for the interest exemption for educational expenses, Series EE or I bonds must be….

A

issued either in the parent’s name (as the sole owner) or in the name of both the parent and the spouse (as co-owners).
Also, the owner must be at least 24 years old before the bond’s issue date.

27
Q

The federal government expects parents and students to contribute a percentage of their income and assets toward the cost of college each year. This is known as the ______________________ amount.

A

Expected Family Contribution (EFC)

28
Q

Under the _____ and _____, student loans are made by private lenders such as banks and credit unions.

A

Stafford and PLUS Loan Programs

29
Q

College savings plans, Coverdell ESAs, and 529 accounts held ______ are reported as parental assets on the financial aid application (FASFA).

A

in the parent’s or dependent child’s name

30
Q

The Lifetime Learning Credit is a _____

A

“per family credit”

31
Q

Pell Grants are awarded only to…

A

full-time or part-time vocational school or undergraduate college students who have not earned a bachelor’s or professional degree.

32
Q

The FAFSA form documents parent and student income received ___________________.

A

two years before the current year

33
Q

529 plans allow participants to roll over amounts tax-free from one plan to another as often as _______, without the need to change beneficiaries.

A

once every 12 months

34
Q

A Federal Supplemental Educational Opportunity Grant (FSEOG) is for ____

A

undergraduates with exceptional financial need.\
There is no guarantee every eligible student will be able to receive an FSEOG.
Students at each school may be awarded an FSEOG based on the availability of funds at that school.

35
Q

______ 50% rate of inclusion within the Expected Family Contribution (EFC) calculation?

A

Student Income

36
Q

What are the variables within the Expected Family Contribution (EFC) calculation?

A

The available student income amount is determined by taking 50% of a student’s income after subtracting certain allowances.

Students assets are included at a 20% rate.

Parent’s income inclusion rate ranges between 5.00% and 5.64%.

Parent’s assets are included at a rate ranging between 22% and 47%, depending on the family circumstances.

37
Q

As the EFC _____, the available Financial Aid award decreases.

A

increases

37
Q

what is the maximum amount that spouses can contribute to a 529 plan using a gift-splitting, forward-funding strategy?

A

$170,000

38
Q

The Asset Protection Allowance …..

A

allows parents to exclude certain portions of their assets from consideration when calculating the Expected Family Contribution (EFC).

39
Q

Characteristics of Direct PLUS Loans

A

Direct PLUS Loans are not need-based.
They are available to parents who are borrowing money to pay for their dependent undergraduate child’s education and for graduate or professional degree students.
The loan will be disbursed in at least two installments and excess amounts must be used for education expenses.

40
Q

Most assets that are counted towards the EFC, including:

A

mutual funds
rental real estate equity, and,
trust funds

41
Q

A _______________ is awarded to students based on financial need and government pays the interest on the loan while students attend school.

A

Subsidized loans

41
Q

characteristics of the Lifetime Learning Credit:

A

non-refundable
“per family credit”

42
Q

To qualify for the tuition and fees deduction, the student must be enrolled in an eligible educational institution who is either:

A
  • you,
  • your spouse, or
  • your dependent you claim on your tax return.
43
Q

For the Expected Family Contribution (EFC) amount, parent’s income is included at a maximum rate of

A

22% to a maximum inclusion rate of 47%

44
Q

The American Opportunity Tax Credit is available expenses EXCEPT:

A

Room and board

45
Q

KIDDIE TAX SUMMARY:

A

1st $1,250 of unearned income = Tax-exempt
Next $1,250 of unearned income = Taxed at child’s rate
Unearned income $2,501 and above = Taxed at parent’s marginal rate

46
Q

Both parents and students are offered an ______ as they determine the EFC on the FAFSA form.

A

Income Protection Allowance

47
Q

Characteristics of a 529 Plan

A

Withdrawals used to pay for “qualified higher education expenses” such as tuition, books and fees are tax-free unless they exceed qualified educational expenses.

There are no income limits in order to qualify for a 529 plan.

Contributions to 529 programs are not tax-deductible at the federal level.

529 investment plans held in a dependent child’s name now get the same favorable treatment in the federal-aid calculation, as 529 plans held in a parent’s name.

48
Q

Education Tax Credit options:

A

Interest on Student Loan Deduction
Lifetime Learning Tax Credit
American Opportunity Tax Credit

48
Q

The Taxpayer Relief Act of 1997 (TRA ‘97) created a tax-advantaged individual retirement account for education savings (Ed-IRA), which was further modified by the Economic Growth And Tax Relief Reconciliation Act of 2001 (EGTRRA). Following the EGTRRA changes, the Ed-IRA was known as a ______.

A

Coverdell Education Savings Account (CESA)

49
Q

Contributions to a Coverdell Education Savings Account are limited to _____annually, per beneficiary. Contributions must be in cash and made before the beneficiary reaches the age of ____

A

$2,000
18

50
Q

Education Funding Calcuation:

A

Step 1: Inflate the current cost of tuition by the tuition inflation rate for the number of years to go before college begins: $____ (PV); ___ (N); ___ (I); solve for FV: $X
Step 2: Determine the total funding need for four years of college (present value of an annuity due): Begin mode on calculator; $X (PMT); __ (N); 2.83 (I) =(1.(after tax return))/1.(IncreaseRate))-1 x100; solve for PV: XX
Step 3: Determine the end of year payment needed to save $XX: End mode on calculator: $XX (FV); ___ (N); the return on investments (I); solve for PMT: ___

51
Q

When computing the Expected Family Contribution (EFC) amount for Financial Aid, student assets are included at a rate of ______, while student income is included at a rate of _______.

A

20%; 50%

CFP Course Prep 1 (15 decks)

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