Quiz | April 2012

The 529 College Savings Plan Quiz

By Thomas M. Anderson

A state 529 plan is one of the most popular ways to save for college because of its tax advantages and ease of use. But how much do you really know about how the accounts work?

Whether you're new to 529 plans or you're a college-savings veteran, put your knowledge to the test with our ten-question quiz. It'll help you better understand this valuable -- yet sometimes confusing -- savings tool:

Quiz

The 529 College Savings Plan Quiz

Question 1 of 10

You can invest only in your home state's 529 plan.

A. True
B. False

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The 529 College Savings Plan Quiz

Question 1 of 10

You can invest only in your home state's 529 plan.

You're right! B. False is correct.

Sorry, wrong! is incorrect.

The right answer is B. False.

You can invest in any state's 529 plan, no matter where you live. Shop around for the program that's right for you.

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The 529 College Savings Plan Quiz

Question 2 of 10

How are 529-plan distributions taxed by the federal government if used for qualified expenses?

A. At a discounted rate proportional to your income
B. At a flat 5%
C. They are not taxed

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Quiz

The 529 College Savings Plan Quiz

Question 2 of 10

How are 529-plan distributions taxed by the federal government if used for qualified expenses?

You're right! C. They are not taxed is correct.

Sorry, wrong! is incorrect.

The right answer is C. They are not taxed.

You can withdraw your money from a 529 plan tax-free as long as you spend it on qualified college expenses. Which brings us to our next question...

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The 529 College Savings Plan Quiz

Question 3 of 10

Which school cost is NOT a qualified expense for a 529 plan?

A. Books
B. Tuition
C. Student-loan repayment
D. Room and board

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Quiz

The 529 College Savings Plan Quiz

Question 3 of 10

Which school cost is NOT a qualified expense for a 529 plan?

You're right! C. Student-loan repayment is correct.

Sorry, wrong! is incorrect.

The right answer is C. Student-loan repayment.

You can use a 529 to cover the cost of books, tuition, school fees, and room and board, but NOT to repay student loans.

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The 529 College Savings Plan Quiz

Question 4 of 10

What is the penalty for nonqualified withdrawals?

A. You owe income tax plus a 10% penalty on earnings
B. You trigger a 50% tax bill
C. The IRS dispatches its knuckle breakers

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The 529 College Savings Plan Quiz

Question 4 of 10

What is the penalty for nonqualified withdrawals?

You're right! A. You owe income tax plus a 10% penalty on earnings is correct.

Sorry, wrong! is incorrect.

The right answer is A. You owe income tax plus a 10% penalty on earnings.

A nonqualified distribution is subject to income tax and a 10% penalty on earnings.

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The 529 College Savings Plan Quiz

Question 5 of 10

A big perk of 529s is that they're not taxed by Uncle Sam. You can also claim a state income-tax deduction for your contributions to a 529 plan.

A. True. No matter where you live, you get the state write-off.
B. Sometimes true. A state write-off depends on where you live and which state's plan you're participating in.
C. False. You never get a state tax deduction.

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The 529 College Savings Plan Quiz

Question 5 of 10

A big perk of 529s is that they're not taxed by Uncle Sam. You can also claim a state income-tax deduction for your contributions to a 529 plan.

You're right! B. Sometimes true. A state write-off depends on where you live and which state's plan you're participating in. is correct.

Sorry, wrong! is incorrect.

The right answer is B. Sometimes true. A state write-off depends on where you live and which state's plan you're participating in..

Thirty-four states and the District of Columbia offer tax incentives for 529-plan participants. If your state's 529 plan has a tax break, investing in that plan usually makes sense. The state tax break will trump lower fees in an out-of-state program. To learn more, see our state-by-state guide to 529 plans.

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The 529 College Savings Plan Quiz

Question 6 of 10

A handful of states give residents a tax break even if they invest in an out-of-state 529 plan.

A. True
B. False

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The 529 College Savings Plan Quiz

Question 6 of 10

A handful of states give residents a tax break even if they invest in an out-of-state 529 plan.

You're right! A. True is correct.

Sorry, wrong! is incorrect.

The right answer is A. True.

Five states (Arizona, Kansas, Maine, Missouri and Pennsylvania) give residents the tax break no matter where they choose to invest their money.

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The 529 College Savings Plan Quiz

Question 7 of 10

How many times a year can you change your 529-plan investments each year?

A. Never. Once you pick an investment, you have to stick with it.
B. Once a year.
C. As many times as you want.

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The 529 College Savings Plan Quiz

Question 7 of 10

How many times a year can you change your 529-plan investments each year?

You're right! B. Once a year. is correct.

Sorry, wrong! is incorrect.

The right answer is B. Once a year. .

The law allows you only one switch per year.

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The 529 College Savings Plan Quiz

Question 8 of 10

The maximum total contribution you can make to a 529 plan depends on the state, but it's usually about...

A. $5,000
B. $20,000
C. $250,000

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The 529 College Savings Plan Quiz

Question 8 of 10

The maximum total contribution you can make to a 529 plan depends on the state, but it's usually about...

You're right! C. $250,000 is correct.

Sorry, wrong! is incorrect.

The right answer is C. $250,000.

The maximum contribution is so high that it isn't really an issue. The specifics vary by state, but most states let you contribute around $250,000 per beneficiary.

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The 529 College Savings Plan Quiz

Question 9 of 10

How much can you contribute annually to each child's 529 without incurring the federal gift tax?

A. $5,000 ($10,000 per couple)
B. Up to $65,000 ($130,000 per couple)
C. As much as you want. Contributions to a 529 are exempt from the federal gift tax.

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The 529 College Savings Plan Quiz

Question 9 of 10

How much can you contribute annually to each child's 529 without incurring the federal gift tax?

You're right! B. Up to $65,000 ($130,000 per couple) is correct.

Sorry, wrong! is incorrect.

The right answer is B. Up to $65,000 ($130,000 per couple).

Although the basic amount you can give to a recipient each year free of the gift tax is $13,000 ($26,000 per couple), when it comes to 529 plans you can stash five year’s worth of money at once ($65,000 or $130,000 per couple) as long as you agree not to make additional gifts to the same recipient for the next four years.

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The 529 College Savings Plan Quiz

Question 10 of 10

Your son decides not to go to college after all. What happens to the money in his 529 account?

A. You can make another family member the beneficiary.
B. You can withdraw the money and pay income taxes and the 10% penalty.
C. It's his money to use how he pleases. You have no control over it.
D. Choices A and B
E. None of the above

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Quiz

The 529 College Savings Plan Quiz

Question 10 of 10

Your son decides not to go to college after all. What happens to the money in his 529 account?

You're right! D. Choices A and B is correct.

Sorry, wrong! is incorrect.

The right answer is D. Choices A and B.

You can change a 529 plan's beneficiary to be another family member at any time without a penalty. However, some plans may have age or residency restrictions on the beneficiary, and others may charge a fee to make the switch. You could also choose to cash out and pay the taxes and penalties. The choice is yours, not the child's.

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The 529 College Savings Plan Quiz

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Quiz | April 2012

The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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The 529 College Savings Plan Quiz

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