Lesson 8 Flashcards
End of Chapter Questions
Which of the following statements concerning educational tax credits and savings opportunities is correct?
A. The Lifetime Learning Credit is equal to 10% of qualified educational expenses up to a certain limit.
B. The American Opportunity Tax Credit (AOTC) is only available for the first 3 years of
postsecondary education.
C. A parent who claims a child as a dependent is entitled to take the AOTC credit for the educational
expenses of the child.
D. The contribution limit for Coverdell Education Savings Accounts is applied per year per donor.
C. A parent who claims a child as a dependent is entitled to take the AOTC credit for the educational
expenses of the child.
• The Lifetime Learning Credit is equal to 10% of qualified educational expenses up to a certain
limit – 20% up to $10,000 in expenses.
• The AOTC is available for the first 3 years of postsecondary education – first four years only.
• A parent who claims a child as a dependent is entitled to take the AOTC for the educational
expenses of the child.
• The contribution limit for Coverdell Education Savings Accounts is applied per year per donor –
per student, not per donor.
End of Chapter Questions
Mitch and Nina have AGI of $125,000 and have not planned for their children’s education. Their children are ages 17 and 18 and the parents anticipate paying $20,000 per year, per child for education expenses. Which of the following is the most appropriate recommendation to pay for the children’s education?
A. 529 Savings Plan.
B. PLUS Loan.
C. Pell Grant.
D. Coverdell ESA.
B. PLUS Loan.
It’s too late for the parent’s to begin saving for their children’s education so that eliminates the 529 Savings Plan and Coverdell ESA. Their AGI is too high for a Pell Grant.
End of Chapter Questions
The following type of financial aid is awarded to students with a low EFC, and funds are guaranteed to be available if a student qualifies:
A. Pell Grant.
B. Plus Loan.
C. Work-Study.
D. Stafford Loan
A. Pell Grant.
Pell Grants are always available if a student qualifies
End of Chapter Questions
What is one of the primary differences between a Coverdell ESA and a 529 Savings Plan?
A. A Coverdell has contribution limits far below those of 529 Savings Plans.
B. A Coverdell does not have a phase-out limit for those making contributions.
C. A 529 Savings Plan has a phaseout limit for those making contributions.
D. A Coverdell allows 5-year proration of contributions.
A. A Coverdell has contribution limits far below those of 529 Savings Plans.
A 529 Savings Plan does not have a phase-out limit. Only a 529 Savings Plan is permitted to use front- loading, in which contribution may be prorated over 5 years for gift tax purposes. Coverdell contributions are limited to $2,000 per year per beneficiary while 529 Savings Plan contributions limits are much higher (the limit varies by state plan but is typically $250,000 - $500,000).
End of Chapter Questions
What is the present value of all college education for 5 children ages 0, 1, 1, 3, and 5 if the cost of education is today’s dollars is $17,000 per year, education inflation is 5%, and the parents expected portfolio rate of return is 8.5%? The children are expected to be in college 4 years and they will each start at age 18.
A. $88,775.02.
B. $148,958.22.
C. $192,007.89.
D. $203,085.22.
The correct answer is c. $192,008 (rounded)
