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CFP Coursework > General Financial Planning - FP511 - Module 7 > Flashcards

General Financial Planning - FP511 - Module 7 Flashcards

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1
Q

Define: American Opportunity Tax Credit

A
  • intended to help families pay for postsecondary education
  • extended to the first 4 years of postsecondary education
  • reduces a family’s tax dollar-for-dollar for first $2k and 25% of the next $2k
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2
Q

What is the maximum amount of credit under the American Opportunity Tax Credit?

A

$2,500

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3
Q

T/F: Room and board are qualified expenses under the American Opportunity Tax Credit?

A

FASLE
Room and board are excluded; tuition, fees, and course materials are qualified expenses.

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4
Q

What percentage of the American Opportunity Tax Credit is refundable?

A

40% (up to $1k)

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5
Q

T/F: The American Opportunity Tax Credit is issued on a per-family basis.

A

FALSE
It is issued on a per-student basis.

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6
Q

When is the American Opportunity Tax Credit not available?

A
  • married taxpayers who file separate returns
  • students with felony drug charges
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7
Q

To qualify for the American Opportunity Tax Credit, what is required of the student?

A
  • enrolled in an educational program leading to a degree, certificate, or other credential
  • enrolled at least half the minimum hours of a full-time student
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8
Q

How many years can someone claim the Lifetime Learning Credit?

A

An unlimited number of years

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9
Q

T/F: The Lifetime Learning Credit requires that an individual be enrolled in a degree program, and at least half-time.

A

FALSE
There is no requirement to be enrolled in a degree program, nor a minimum number of credit hours.

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10
Q

T/F: The Lifetime Learning Credit is a per-family credit.

A

TRUE

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11
Q

T/F: The Lifetime Learning Credit is subject to phaseout for taxpayers with income over a certain limit, but the American Opportunity Tax Credit is not.

A

FALSE
They are both subject to phaseout

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11
Q

What is the maximum amount permitted under the Lifetime Learning Credit.

A

20% of the first $10k paid by a taxpayer, or $2k

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11
Q

T/F: The Lifetime Learning Credit is non-refundable.

A

TRUE

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12
Q

T/F: The felony drug conviction rule does not apply to the Lifetime Learning Credit.

A

TRUE

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12
Q

T/F: A taxpayer can claim both the Lifetime Learning Credit and the American Opportunity Tax Credit on the same student.

A

FALSE

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13
Q

When is student loan interest deduction allowed? Who can claim it?

A
  • for interest incurred on loans solely to pay for qualified higher education expenses
  • student or parent (if a PLUS loan)
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14
Q

How is student loan interest accounted for on a tax return?

A

It is deductible as an adjustment to AGI, up to a maximum of $2,500 per year

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15
Q

Do phaseout limitations apply to student loan interest?

A

yes

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16
Q

How long are borrowers able to deduct their student loan interest?

A

For the entire term of the loan

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17
Q

T/F: A taxpayer can claim an American Opportunity Tax Credit or Lifetime Learning Credit, and exclude distributions from a CESA or 529 plan from gross income in the same year.

A

TRUE, if:
- the CESA or 529 distribution are not used to pay the same expenses for which either credit was claimed.

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18
Q

When might a taxpayer waive the American Opportunity Tax Credit or Lifetime Learning Credit, even if they qualify?

A

The tax savings resulting from the credit is less than the savings from the income-free treatment of a 529 withdrawal.

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19
Q

T/F: The student loan interest deduction can be used in combination with any of the other educational tax benefits.

A

TRUE

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20
Q

How much educational assistance may an employer provide if the assistance is job related? If not job related?

A
  • unlimited
  • $5,250 during any one year
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21
Q

T/F: Meals, transportation, and lodging are not qualifying expenses for the Employee Assistance Program.

A

TRUE

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22
Q

T/F: The cost of college education is keeping pace with the rate of inflation.

A

FALSE
It is rising faster.

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23
Q

What are the 3 steps required to determine how much money a client will need to pay for a college education?

A

1- inflate
2- adjust
3- invest

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24
Q

How do you calculate the inflation adjusted rate of return?

A

1 + rate of return
————————– -1 x 100
1 + rate of inflation

1.0RR / 1.0RI - 1 x 100 in calc as one string

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25
Q

How is the amount of financial aid a student can receive calculated?

A

The EFC is subtracted from the total annual cost of enrollment

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26
Q

How does parental income factor into the EFC calculation?

A
  • includes taxable and non-taxable income
  • there is a 2 year lookback
  • 22%-47% included depending on AGI from 2 years prior, number of dependents in college, marital status, and special family circumstances
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27
Q

How do parental assets factor into the EFC calculation?

A
  • home equity, cars for regular transportation, cash value of life policies, and retirement plan balances excluded
  • assessed from 5% up to a max of 5.64%
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28
Q

How does student income factor into the EFC calculation?

A
  • includes taxable and non-taxable income
  • 1 year lookback
  • $7,600 income protection allowance
  • income above protected amount included at a rate of 50%
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29
Q

How do student assets factor into the EFC calculation?

A
  • includes the value of everything the student owns or has been saved on their behalf
  • assessed at 20%
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30
Q

T/F: Custodial accounts are considered assets of the child.

A

TRUE

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31
Q

T/F: Parent-owned or dependent child-owned Section 529 plan assets are considered assets of the child.

A

FALSE
They are considered assets of the parent.

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32
Q

What federal grant programs are available to students attending four-year universities, community colleges, and career schools?

A
  • Federal Pell Grants
  • Federal Supplemental Educational Opportunity Grants (FSEOG)
  • Teacher Education Assistance for College and Higher Education (TEACH) grants
  • Iraq and Afghanistan Service Grants
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33
Q

Additional sources of financial aid, other than the US Department of Education, include:

A
  • colleges
  • nonprofits
  • the state government
  • local organizations
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34
Q

T/F: A student that has a conviction for the possession or sale of illegal drugs for an offense that occurred while receiving federal student aid are barred from receiving federal student aid.

A

FALSE
They must complete the Student Aid Eligibility Worksheet to determine their eligibility for aid.

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35
Q

T/F: A student seeking federal aid must be a citizen or eligible non-citizen, have a valid SSN, and have a high school diploma or GED.

A

TRUE

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36
Q

T/F: A student seeking federal aid does not have to maintain satisfactory academic progress.

A

FALSE

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37
Q

T/F: A student seeking federal aid can be in default on a federal student loan, as long as it is for less than $5k.

A

FALSE
The student cannot be in default for any amount, and cannot owe a refund on a federal student grant.

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38
Q

T/F: Male students seeking federal aid are also required to register for the draft.

A

TRUE

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39
Q

Loans used to pay education expenses that are dispersed directly to the student are:

A

direct student loans

40
Q

Loans used to pay education expenses that are disbursed by the institution are:

A

campus-based aid

41
Q

T/F: Most student loans from the Dept of Ed may be used for either undergraduate or graduate education.

A

TRUE

42
Q

Does the Stafford loan program offer subsidized or unsubsidized loans?

A

both

43
Q

T/F: Graduate students and undergraduate students qualify for subsidized Stafford loans.

A

FALSE
only undergraduate students

44
Q

Why would a student typically qualify for a subsidized loan?

A

based on financial need

45
Q

How are Stafford loans subsidized?

A

The government pays interest due while the student is in school and for 6 months following graduation.

46
Q

When are interest payments due on unsubsidized loans?

A

within 60 days of disbursement

47
Q

T/F: Part time and students enrolled at least half time are eligible to apply for Stafford loans.

A

FALSE
part-time students are not eligible

48
Q

When are interest rates on Stafford loans determined?

A

each spring for the upcoming year

49
Q

T/F: Stafford loans have fixed interest rates.

A

TRUE

50
Q

What is the typical repayment period for Stafford loans?

A

10 years

51
Q

PLUS Loans are taken out by

A

parents of students for their undergraduate studies

52
Q

T/F: PLUS loans are needs based.

A

FALSE

53
Q

Are part time students eligible for PLUS funds?

A

No

54
Q

When does repayment begin on PLUS loans?

A

Within 60 days of disbursement

55
Q
A
56
Q

What program allows for multiple student loans to be combined into one loan?

A

Direct consolidation loans

57
Q

How is the interest rate determined for direct consolidation loans?

A

it is the weighted average of the interest rates on the loans included in the consolidation, rounded to the highest one-eighth of 1%

58
Q

After ____ days of delinquency on a student loan, the servicer may report the delinquency to credit bureaus.

A

90

59
Q

After _____ days of delinquency on a student loan, the loan is considered the be in default.

A

270

60
Q

When were the last disbursements made for Perkins loans?

A

June 30, 2018

61
Q

Perkins loans were ____ interest rate loans funded by ________________ but administered by _________________.

A

low
the federal government
individual schools

62
Q

When were not charged interest on Perkins loans until how many months after graduation?

A

9

63
Q

T/F: A FAFSA is required to apply for need based scholarships.

A

TRUE

64
Q

T/F: Students are not required to pay back government-provided grants.

A

TRUE

65
Q

Pell grants are available to _________________ students only, on the basis of ______________.

A

undergraduate
substantial financial need

66
Q

T/F: All students, including part-time, are eligible for Pell Grants.

A

TRUE

67
Q

FSEOGs are funded by the federal government but administered by:

A

individual schools

68
Q

T/F: FSEOGs are available to undergraduate students and graduate students, and are need-based.

A

FALSE
available to undergrad only

69
Q

Who is given the highest priority in receiving FSEOGs?

A

Pell Grant recipients

70
Q

How much is offered per student in the TEACH Grant program?

A

Up to $4k

71
Q

Define: Federal Work-Study Program

A

Provides eligible students with employment, on or off campus, to help cover costs of their education.

72
Q

T/F: The work-study program is available to undergrad and graduate students, both part and full-time.

A

TRUE

73
Q

How are undergraduate students paid in the work-study program? Graduate students?

A

hourly
hourly or salary

74
Q

What is the best way to structure a savings plan to fund college expenses?

A
  • by maintaining the funds in a manner that will maximize tax-deferral opportunities
  • by selecting investment vehicles to achieve the greatest possible return consistent with preservation of the funds
75
Q

What is the most important factor (besides risk tolerance) to consider when deciding what securities and how much to invest?

A

time horizon

76
Q

Historically, the 3 means of financing a child’s college education have been:

A

1- current income of parents or relatives
2- student loans, grants, or scholarships
3- parent’s or relative’s personal savings

77
Q

What is the major practical disadvantage of a custodial account?

A

When the child reaches age of majority, they gain access to the funds in the account.

78
Q

T/F: UGMA and UTMA accounts cannot be transferred to another sibling or family member.

A

TRUE

79
Q

Who is considered to be the owner of a UTMA/UGMA account?

A

The child

80
Q

Series EE bonds can be converted to what type of savings plan?

A

Section 529

81
Q

What is the annual contribution limit for CESAs?

A

$2k per beneficiary, regardless of the number of donors

82
Q

Are contributions to a CESA deductible?

A

No

83
Q

T/F: Distributions from a CESA for room and board expenses are permitted.

A

TRUE

84
Q

What age must funds within a CESA be used?

A

30

85
Q

Can beneficiaries of CESAs be changed?

A

yes, by the owner of the account

86
Q

What are the tax benefits of a Section 529 plan?

A
  • ability to make contributions regardless of AGI
  • tax-free earnings growth
  • tax-free withdrawals for edu. expenses
87
Q

What is the annual limit for disbursements on a 529 before taxation of the earnings begins for education prior to college?

A

$10k

88
Q

Do beneficiaries of 529 plans gain control of the assets when they reach the age of majority?

A

no

89
Q

What are the 2 types of Section 529 plans?

A

1- prepaid tuition plan
2- college savings plan

90
Q

Define: Prepaid Tuition Plan

A

Permits contributors to prepay future tuition at today’s tuition rates or purchase tuition credits to apply to future tuition costs.

91
Q

What is a significant advantage of the college savings plan over the prepaid tuition plan?

A

it does not restrict where the student goes to school

92
Q

T/F: Funds in a college savings plan are guaranteed by the state.

A

FALSE

93
Q

Define: ABLE Account

A

Provides individuals with disabilities and their families with the ability to fund a tax-preferred savings account to pay for qualified disability-related expenses.

94
Q

_______________ is a process typically accomplished by either transferring funds directly to a minor child’s control or establishing a custodial or trust arrangement on behalf of the child.

A

Income shifting

95
Q

Investment vehicles selected for education funding when the child is subject to the kiddie tax should be structured for:

A

growth

96
Q

The most important consideration when planning for college costs is to

A

begin saving as early as possible.

97
Q

T/F: Contributions to a 529 are removed from the contributor’s estate.

A

TRUE

98
Q

How does the gift tax rule apply to a 529 plan?

A
  • allows an individual to make a contribution up to the annual exclusion amount
  • can make up to 5 times the annual exclusion through an accelerated contribution
99
Q

If funds accumulated in an education account are not needed, what are 2 variables that need to be considered?

A

1- portability of funds
2- control of funds at age of majority

100
Q

Funds in a 529 can be transferred to:

A

another beneficiary, if permitted by the plan.

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