Discuss Finra Series-6 Exam Topic 1 Question 105

Uncle Scrooge (uncharacteristically) wants to set up a Section 529 college savings plan for his nephew, Louie. If he does so:

Ahe can contribute at most $2,000 a year.

Bhis contributions will be tax deductible.

Cany withdrawals that Louie makes to cover tuition, books, and room and board will be free from both federal and state taxes.

Dand Louie decides not to go to college, Uncle Scrooge can name Louie's brother, Huey, as the beneficiary of the plan without any tax consequences.

Suggested Answer: D

If Uncle Scrooge sets up a Section 529 college savings plan for his nephew Louie, and Louie decides not to go to college, Uncle Scrooge can name Louie's brother, Huey, as the beneficiary of the plan without any tax consequences. Unlike the Coverdell Education Savings Plan, there is no limit to the contribution that can be made, although gift taxes may apply if the contribution exceeds the threshold for gifts. Scrooge's contributions are not tax deductible, and although any withdrawals Louie makes will be free from federal taxation, different states have different rules regarding the taxation of 529 plans.

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19 comments · newest first

Cordelia 11 months ago

Surprised to learn about the tax-free withdrawals for room and board!

Laticia 11 months ago

Totally agree, the tax-free withdrawals are a huge plus!

Twanna 11 months ago

I love that he can change the beneficiary without penalties!

Arminda 11 months ago

Wait, are the contributions really tax deductible? I thought they weren't.

Herminia 11 months ago

You can actually contribute more than $2,000 a year!

Xuan 12 months ago

I recall that you can change the beneficiary without tax consequences, so D sounds right, but I need to double-check the rules on that.

Cecil 12 months ago

I’m a bit confused about the tax deductibility of contributions. I thought they weren’t deductible on federal taxes, but maybe I’m mixing it up with something else.

Jackie 1 year ago

I practiced a question similar to this, and I believe that withdrawals for qualified expenses are tax-free, so C might be correct.

Lashonda 1 year ago

I think I remember that the contribution limit is actually higher than $2,000 a year, but I’m not completely sure what it is.

Florinda 1 year ago

This is a tricky one. I'm going to make sure I understand the details of 529 plans before I commit to an answer.

Kayleigh 1 year ago

Okay, let's see. I think the key is understanding the tax implications of the 529 plan. I'll focus on that and try to eliminate the wrong answers.

Allene 1 year ago

Hmm, I'm not sure about this one. I need to think it through carefully. Let me re-read the question and options.

Verlene 1 year ago

I'm pretty confident I know the answer to this one. It's gotta be C - the withdrawals are tax-free.

Francisca 1 year ago

I think the answer is B because tax deductions are usually a benefit of these types of plans.

Eve 1 year ago

I'm pretty sure the answer is D.

Rocco 1 year ago

Hold on, I'm not giving away my money that easily! But if it means Louie can get a good education, I suppose I can make an exception.

Felicitas 1 year ago

↳ replying to Rocco

A) he can contribute at most $2,000 a year.

Malissa 1 year ago

I disagree, I believe the answer is A.

Staci 1 year ago

I think the answer is C.

Finra Series-6 Exam - Topic 1 Question 105 Discussion