Education Savings Vehicle

Question 1

How much tax is paid on a QTP distribution?

Answer 1

There is no tax due unless the distribution exceeds the student’s education cost or is not used for qualified educational expenses.

Question 2

What are the qualified expenses included in a 529 plan?

Answer 2

Tuition
Fees
Books
Room and board (at least half-time enrolled)
Equipment and special needs services
Computer technology or equipment (including related technology such as Internet access)

Question 3

What are the two basic types of 529 plans?

Answer 3

Prepaid tuition plan

Savings plan

Question 4

List the four conditions for a contribution to a Coverdell ESA.

Answer 4

Contributed in cash
$2,000 max per year
Contributed before age 18
Used prior to age 30

Question 5

The additional 10% tax on taxable distributions does not apply in what situations?

Answer 5

Assistance (scholarship, grant, etc.)
Death
Disability
Academy (Military)
Credit (AOTC or LLC)

Question 6

Are contributions to a QTP tax deductible at the federal level?

Answer 6

No

Question 7

Under what circumstances can an American opportunity or lifetime learning credit and a tax-free distribution from a QTP be taken in the same year?

Answer 7

Both can be taken in the same year as long as the same expenses aren’t used for both benefits.

Question 8

What is the maximum annual contribution to a 529 plan with no gift tax consequence/filing?

Answer 8

$75,000 for an individual; $150,000 for a couple (five-year election rules)

Question 9

What do “Qualified Tuition Programs (QTPs),” or “529 Plans” allow your client to do?

Answer 9

To either prepay or contribute to an account for paying education expenses at a college and university

In the case of 529 Plans, to pay for up to $10,000 of K-12 education per year.
or

K-12 private education.

Question 10

Any earned interest from a qualified U.S. savings bond can be excluded from income under what conditions?

Answer 10

Used to cover qualified education expenses for client, client’s spouse or a dependent, and issued after 1989
MAGI does not exceed phase-outs (Note: Phase-outs are provided on the exam)
Filing status isn’t married filing separately
Rolling over savings bonds to a 529 plan (when issued after 1989)

Question 11

What is the penalty if an excess contribution is made to a Coverdell ESA?

Answer 11

If not returned within six months, there is a 6% tax on the excess contribution.

Question 12

A Coverdell Education Savings Account (ESA) can be used for what type of expenses?

Answer 12

Elementary, secondary, and higher education expenses