Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

Which statement correctly defines a 529 Plan?

1. A tax advantage plan for retirement savings

2. A savings plan for education expenses

3. A type of life insurance policy

4. A standard savings account with tax benefits

The correct answer is: A savings plan for education expenses

The definition of a 529 Plan as a savings plan for education expenses is accurate because these plans are specifically designed to help families save for future educational costs, including tuition, fees, room and board, and other related expenses for qualified higher education institutions. The tax advantages of a 529 Plan include tax-free growth and tax-free withdrawals when used for qualified education expenses, making it an effective tool for educational savings. The other options do not align with the primary purpose of a 529 Plan. While a tax advantage plan for retirement savings describes a different type of investment vehicle, a type of life insurance policy refers to products focused on providing financial protection rather than savings for education. Lastly, a standard savings account with tax benefits does not capture the specific purpose and structure of a 529 Plan, which is distinct because of its focus on education-related expenses and the unique tax treatment it receives under federal law.