Pop Quiz: Paying for College

Test your knowledge of college funding basics.

1. How much have average tuition and fees for four–year public colleges risen over the past 20 years?

a. 21%
b. 31%
c. 101%
d. 231%

2. What is the maximum amount that can be contributed each year to a 529 savings plan on behalf of a student?

a. $2,000
b. $5,000
c. $10,000
d. As much as is reasonably necessary to fund the student’s future education costs, up to plan limits.

3. What is the federal income tax rate on withdrawals from a 529 savings plan that are spent on qualified higher–education expenses?

a. It depends on the student’s tax bracket.
b. 0%
c. 10%
d. 15%

4. People with a bachelor’s degree earn over ____% more, on average, than people with only a high school diploma.

a. 10
b. 21
c. 62
d. 71

5. What is the maximum amount that can be contributed each year to a Coverdell Education Savings Account (ESA) on behalf of a student?

a. $2,000
b. $5,000
c. $10,000
d. As much as is reasonably necessary to fund the student’s future education costs.

Answers:

1. d. Comparison of 1985–86 and 2005–06 college costs.

2. d. Contributions of more than $12,000 in 2006 and 2007 may be subject to the federal gift tax. As with other investments, there are generally fees and expenses associated with participation in an ESA or a 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments.

3. b. The tax implications of a 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also note that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.

4. c.

5. a.

^{Source: The College Board, 2006}