Question

2.

Because of the kiddie tax, which of the following types of investments should be relied upon to fund a trust for the education of a young beneficiary?

		A. Investments that emphasize high levels of current income if the beneficiary is under the age of 19 (24 if a student).
		B. Investments that provide tax-free income, regardless of the beneficiary’s age.
		C. Investments that emphasize recognition of capital gains regardless of age.
		D. None of the above.

3.

Which of the following is an inaccurate statement specific to private student loans?

		A. There is no loan forgiveness for careers in public service.
		B. Income-based repayment options are available.
		C. Loans may not be discharged upon the borrower’s death or permanent disability.
		D. Banks, credit unions, credit card companies serve as lenders.

4.

Mary’s parents died in a plane crash when she was 17 years old. Her parents established both a Coverdell ESA ($30,000 account balance) and a 529 plan ($50,000 account balance) for Mary. In addition, they left Mary $100,000 in cash, $500,000 in stocks and bonds and $1 million of life insurance. The family attorney helped Mary invest the money wisely. As a result, she has $30,000 of interest, dividends and capital gain income this year. Mary started her freshman year at State University this year. The tuition is $25,000 a year. What is the best way for Mary to pay for college this year?

		A, Mary should pay $4,000 from her income and $21,000 from her ESA
		B, Mary should pay $10,000 from her income and $15,000 from her 529 plan
		C. Mary should pay $25,000 from her ESA
		D. Mary should pay $25,000 from her 529 plan

Answer 1

Question 2 answer:

The correct option is option B, i.e. the investments should be made on such schemes that provide tax free income regardless of the beneficiary’s age. This will reduce the income tax burden to the minimum. Thus, option B is the correct option.

Question 3 answer:

The loan forgiveness option is available for careers in public service thus, the first option, i.e. option A is inaccurate specific to the private student loans. Thus, the correct answer for the question is option A.   

Question 4 answer:

Marry should pay $25,000 from her ESA as there is no age limit in case of plan 529 thus, in later the fund can be sued to pay tuition fees. Both ESA and plan 529 are tax free for payment of tuition fees however, since ESA has age limits up to which the payment can be made for tuition thus, the same should be used for payment of tuition fees. Thus, the correct option is option C.