MENU
Which of the following statements regarding a Coverdell Education Savings Plan (ESA) are true?
i. There are income limitations regarding those who may contribute to an ESA
ii. There is a maximum annual aggregate amount that can be contributed to a single beneficiary's account.
iii. Contributions to an ESA are tax deductible.
IV. The monies must be used prior to the beneficiary's 30th birthday for education-related expenses in order to avoid paying both taxes and a penalty.
Suggested Answer: B
Get Premium Series-6 Questions
as Interactive Web-Based Practice Test or PDF
Real Exam Format
Detailed Explanations
Instant Access
Get Your Practice Test
The true statement is that reinvested dividends and capital gain distributions count toward reaching a breakpoint under the rights of accumulation. The rights of accumulation are not something that all mutual funds with front-end loads must offer. There is no time limit on the accumulation period. The rights of accumulation and the letter of intent are two separate animals; neither has anything to do with the other.
38 comments · newest first
VI
Vince
12 months ago
Yep, max contribution limits are a thing too!
RO
Rozella
1 year ago
Wait, they have to use the money by age 30? That seems strict!
TA
Tamra
1 year ago
Actually, contributions to an ESA are not tax deductible.
DE
Deja
1 year ago
Totally agree, but I thought contributions were tax deductible?
CA
Casie
1 year ago
I know there are income limits for ESA contributions.
JA
Jamika
1 year ago
I believe the funds must be used before the beneficiary turns 30, but I’m uncertain about the penalties if they aren’t.
CA
Carlton
1 year ago
Contributions to an ESA are definitely not tax-deductible, right? That seems to be a common point in practice questions.
TA
Taryn
1 year ago
I think there is a maximum contribution limit per beneficiary, but I can't recall if it's annual or total.
CY
Cyril
1 year ago
I remember that there are income limits for contributing to an ESA, but I'm not sure about the exact figures.
HO
Hobert
1 year ago
I'm a little confused by this question. I know contact tracing is an important part of the pandemic response, but I'm not super familiar with the specific laws and regulations around it. I'll have to make an educated guess on this one.
HO
Hollis
1 year ago
I remember we discussed the importance of leadership in compliance, but is that really the key for a risk-based program?
IL
Iluminada
1 year ago
I think FSAs are set up by employers, but I can't remember if it's only them or if employees can contribute too.
HA
Haydee
1 year ago
Wait, there's a 30th birthday deadline? Guess I better start saving for my kid's college fund before they hit the big 3-0!
JA
Jacklyn
1 year ago
Ailene: That makes sense, there are income limitations and a maximum contribution amount.
GL
Glory
1 year ago
User 3: I think the correct options are A) I and II only.
AI
Ailene
1 year ago
User 2: I didn't know that, thanks for the heads up!
FA
Fannie
1 year ago
User 1: Yeah, there's a deadline to use the money for education expenses.
BR
Brice
1 year ago
Wow, that fourth statement really threw me off. I was about to select A, but I guess I need to read more carefully next time.
WH
Whitney
1 year ago
User 3: It's important to pay attention to all the details in these types of questions.
XO
Xochitl
1 year ago
User 2: I agree, I almost selected the wrong answer too.
KI
Kiley
1 year ago
User 1: I know, that fourth statement is tricky.
BU
Buck
2 years ago
Hah, good thing I read the fine print! I almost went with B, but the tax deduction part is a myth. C is the way to go.
KY
Kyoko
1 year ago
I'm glad we both caught that detail. C it is!
JA
Janessa
1 year ago
Yeah, I made the same mistake. C is definitely the correct choice.
JA
Jamal
1 year ago
I almost picked B too, but then I realized contributions to an ESA are not tax deductible.
MA
Mauricio
2 years ago
D seems to be the right answer. All four statements are true about a Coverdell ESA. I'm confident this is the correct choice.
VE
Verlene
1 year ago
I'm also leaning towards D. It seems to be the most comprehensive option with all the correct statements.
DO
Domonique
1 year ago
Yes, D is the right choice. It covers all the important aspects of a Coverdell ESA.
GL
Gladys
1 year ago
I agree, D includes all the true statements about a Coverdell ESA.
EM
Emiko
1 year ago
I think D is the correct answer. All four statements seem to be true about a Coverdell ESA.
BE
Beata
1 year ago
Absolutely, knowing the specifics can help make the most of the savings plan.
DO
Dottie
1 year ago
I believe D is the best choice. It's good to be informed about the rules and limitations.
MI
Micaela
1 year ago
Yes, I agree. It's important to know the details of the plan before contributing.
HY
Hyun
1 year ago
I think D is the correct answer. All four statements are true about a Coverdell ESA.
NI
Nicolette
2 years ago
I think the correct answer is C. The first three statements are true, but the fourth one is not. The monies can be used until the beneficiary's 30th birthday, not before.
MI
Mila
2 years ago
I'm not sure about the tax deductible part, but I think the penalty for not using the money for education expenses before the beneficiary's 30th birthday is true.
RO
Roxane
2 years ago
I agree with Iluminada, because there are income limitations and a maximum annual contribution for an ESA.
IL
Iluminada
2 years ago
I think the correct answer is C) I, II, and IV only.