Personal Finance – Goals, Budgeting, And Wealth Building Practice Test

Which statement about 529 college savings plans is true?

They earn no tax benefits They are tax-advantaged for education expenses They are primarily used for retirement income They require a fixed annual contribution

Correct Answer:

They are tax-advantaged for education expenses

Explanation:

529 plans are designed to provide tax-advantaged growth specifically for education costs. Money invested inside a 529 can grow without federal taxes, and withdrawals that are used for qualified education expenses—such as tuition, fees, books, and room and board—are not taxed at the federal level. Some states also offer additional benefits, like a deduction or credit for contributions, which enhances the overall value of the plan. This makes them a purpose-built savings tool for education expenses rather than for retirement income, and there isn’t a requirement to contribute a fixed amount each year—the contribution can be any amount up to the plan’s limits. If money is taken out for non-qualified expenses, taxes and possible penalties apply.

Access more questions from this quiz

Continue to Personal Finance – Goals, Budgeting, and Wealth Building Practice Test for more practice questions and the full quiz experience.

Access More Questions