LO 8.2.4: Recommend education funding options based on tax implications, required savings, client preferences, and overall financial situation.

Question 1

How do federal gift tax rules apply to Section 529 Plans

Answer 1

• Can make $15K contribution without tax.
• Donors are eligible to deposit up to 5x through accelerated, or ratable contribution ($75K)
• If split with a spouse, a one-time contribution every 5 years up to $150K

Question 2

Are contributions to a 529 plan removed from the contributor’s gross estate?

Answer 2

Yes.

Question 3

Does the contributor retain control of the 529 plan after death?

Answer 3

Yes, but the balance is not included in the estate for estate tax purposes.

Question 4

If the owner contributor of an accelerated 5 year plan passes away before the 5 years is up, is the contribution exclusion is pro-rated annually?

Answer 4

Yes, for example, if the contributor dies after 3 years, the $30,000 remaining contributions is no longer excluded from her estate.

Question 5

What are 2 factors to consider if an education acct has accumulated a balance and is no longer a needed because the student earned a scholarship or other award?

Answer 5

• Portability of funds and

* Control of acct at age of majority.

Question 6

529 Portability of Funds | Can the college funds for Student A are no longer needed be retitled for Student B?

Answer 6

Yes, If the parents are owners, can be transferred to another beneficiary (sibling or cousins) if permitted by the plan.

Question 7

Coverdell ESAs (CESAs) Portability of Funds | Can the college funds for Student A are no longer needed be retitled for Student B?

Answer 7

Yes, can be transferred to another beneficiary.

Question 8

UGMAs and UTMAs Portability of Funds | Can the college funds for Student A are no longer needed be retitled for Student B?

Answer 8

No, cannot be transferred to another child.

Question 9

Trusts Portability of Funds | Can the college funds for Student A are no longer needed be retitled for Student B?

Answer 9

• Can be established individually or with multiple beneficiaries
• In either case, funds need to be allocated to the stated beneficiaries.
• There are pot trusts that pool money for beneficiaries but do not specifically allocate.
• Trust funds are spelled out at inception, not designed to switch beneficiaries.

Question 10

529 Control of Funds at Age of Majority | If the education fund as accumulated a balance that is no longer needed, who assumes control of the assets at 18, or age of majority?

Answer 10

is no longer needed, who assumes control of the assets at 18, or age of majority?
* Account owner’s assets: the funds are not transferred to the student at age 18.

Question 11

Coverdell (CESA) Control of Funds at Age of Majority | If the education fund as accumulated a balance that is no longer needed, who assumes control of the assets at 18, or age of majority?

Answer 11

All funds must be used before the child reaches 30

Question 12

UGMA and UTMA Control of Funds at Age of Majority | If the education fund as accumulated a balance that is no longer needed, who assumes control of the assets at 18, or age of majority?

Answer 12

• Custodial accounts in the child’s name;
• When the child reaches age of majority (18 or 21 depending on the state), they assume ownership and aren’t required to use the funds for education.

Question 13

Trusts 2503(b) Control of Funds at Age of Majority | If the education fund as accumulated a balance that is no longer needed, who assumes control of the assets at 18, or age of majority?

Answer 13

• Can hold funds beyond the beneficiary’s age of majority.
• 2503(b)—principal or income required to be distributed by age 21.
• Trust with spendthrift provision— disburses funds for college expenses only and retains control of the trustee beyond age of majority.