Products & Their RisksQuestion 124 of 398
A 529 college savings plan offers which key federal tax benefit?
a.Contributions are deductible on the federal return
b.Withdrawals are always federally tax-free for any purpose
c.Earnings are taxed annually at a reduced federal rate
d.Earnings grow tax-deferred and qualified education withdrawals are federally tax-free
Explanation
In a 529 plan, contributions are made with after-tax dollars, but earnings grow tax-deferred and withdrawals used for qualified education expenses are free from federal income tax. Nonqualified withdrawals of earnings are taxed and generally hit with a 10% penalty.
Practice all 398 questions free — no signup required.
Related questions on this topic
- The taxable-equivalent yield of a municipal bond is used to:
- Interest paid on most general obligation municipal bonds is:
- A 'bank-qualified' municipal bond is one that:
- An ABLE account is designed primarily to:
- The debt service on a municipal revenue bond is paid from:
- Which agency mortgage security is backed by the full faith and credit of the U.S. government?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Securities Industry Essentials (SIE) Exam · How we review