Education Planning

Question 1

COLLEGE SAVINGS 529 BENEFITS
-Whose asset (parent or child)?
-Expense Restrictions?
-Use for elem or secondary School?
-Pay for Apprenticeship Programs?
-Pay Down Student Loans?

Answer 1

COLLEGE SAVINGS 529 BENEFITS
-Parent’s asset
-Not restricted to just tuition and fees (can use for room & board, books, computer, etc.)
-Yes to use for elem or secondary school
-Yes for Apprenticeship programs
-Yes, up to $10k can be used to pay down student loans

Question 2

COLLEGE SAVINGS PREPAID TUITION
-Whose asset (parent or child)?
-Expense Restrictions?
-Use for elem or secondary School?
-Pay for Apprenticeship Programs?
-Pay Down Student Loans?

Answer 2

COLLEGE SAVINGS PREPAID TUITION
-Parent’s asset
-Yes, generally restricted to tuition and fees
-No to use for elem or secondary school
-No for Apprenticeship programs
-No for use to pay down student loans

Question 3

Who can own a 529 Plan?

Answer 3

Any of the following can own a 529:
Individual
Corporation
Partnership
Trust
Estate
Anyone acting in a fiduciary capacity

Question 4

What are the rules when changing a 529 plan beneficiary?

Answer 4

New beneficiary must be family member of original beneficiary.

NOTE: the bene on an UGMA/UTMA cannot be changed!

Question 5

What is a 529 Able account for?

Answer 5

For people disabled before age 26; does not disqualify bene from most types of gov’t benefits (SS & Medicare)

Question 6

Rules for rolling over unused 529 plans into a Roth IRA (per Secure 2.0)

Answer 6

-Can rollover $35k without tax consequence
-529 plan must be established for 15 years
-Can roll only up to Roth annual limit per year
-Goes into the bene’s IRA

Question 7

Gifts to UGMA, UTMA, Coverdells, and 529 Plans are all considered gifts of a ________ interest.

Answer 7

Present

Question 8

What are the Coverdell ESA contribution limits per year?

Answer 8

$2k per year per student (regardless of how many donors)

Question 9

To what extent can Coverdell ESA be used for elementary and secondary education expenses?

Answer 9

Very liberally (tuition, fees, tutoring, books, supplies, room & board, uniforms, transportation, extended day program, computer technology, internet access)

Question 10

What are the differences in income limitations for 529 vs Coverdell contributions?

Answer 10

529: no income limitations for contributions
Coverdell: Phased out for higher-income contributors

Question 11

What are the investment types allowed for UGMAs?

Answer 11

Cash-type investments: EE bonds, stocks, mutual funds, CDs, savings accounts

Question 12

What are the investment types allowed for UTMAs?

Answer 12

Cash-type investments plus real estate or limited partnerships

Question 13

Kiddie Tax Rules

Answer 13

-First $1300 of unearned income is tax free
-Next $1300 is taxed at the child’s tax bracket (usu. 10%)
-Anything above that is taxed at parents’ marginal tax rate

Question 14

Series EE or I Educational Bonds:
-In whose name?
-Redeemable when?
-Use for which expenses?
-Interest exemption?
-Subject to phaseouts for tax benefits?

Answer 14

Series EE or I Educational Bonds:
-In parents’ name
-Redeemable in a year when parent pays for qualified education expenses.
-Use for tuition and fees only.
-Interest fully exempt from Federal income tax.
-Subject to phaseouts for tax benefits based on parents’ MAGI.

Question 15

American Opportunity Credit or Lifetime Learning Credit- which is allowed for undergrad or grad expenses?

Answer 15

Lifetime Learning Credit

Question 16

American Opportunity Credit or Lifetime Learning Credit- which one requires student to take at least one half of normal full time student load?

Answer 16

American Opportunity Credit

Question 17

American Opportunity Credit or Lifetime Learning Credit- which is subject to MAGI phaseouts?

Answer 17

Both!

Question 18

American Opportunity Credit or Lifetime Learning Credit- which is available per eligible student?

Answer 18

American Opportunity Credit

Question 19

Which four benefits cannot be claimed at the same time for the same funds?

Answer 19

American Opportunity Credit
Lifetime Learning Credit
529
Coverdell

Question 20

Colleges expect what percentage of the following assets to be used to pay for college:
-Child’s assets
-Parents’ assets

Answer 20

Child’s assets: up to 20%
Parents’ assets: up to 5.64%

Question 21

Which two primary family assets are not counted on the FAFSA?

Answer 21

Primary Residence; Balances and current contributions to retirement savings