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

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Which type of education savings plan can be used to fund both elementary and higher education?

  1. 529 Plan

  2. Coverdell Education Savings Plan

  3. Uniform Transfers to Minors Act (UTMA)

  4. Health Savings Account (HSA)

The correct answer is: Coverdell Education Savings Plan

The Coverdell Education Savings Plan is specifically designed to allow for tax-free withdrawals when used for qualified education expenses, which include both elementary and higher education. This flexibility makes it unique among education savings plans, as many options are primarily aimed at funding higher education only. With a Coverdell plan, contributions can be made until the beneficiary reaches the age of 18, and the funds can be used for a wide range of educational expenses, including tuition, fees, books, supplies, and even certain room and board costs for eligible students at both elementary and secondary schools. This broad usage is vital for those who seek to invest in a child’s education from an early age and ensure proper resources are available throughout their educational journey. In contrast, while the 529 Plan is primarily known for funding higher education, it can also be used for K-12 education expenses but has different rules regarding withdrawal amounts and types of expenditures. The Uniform Transfers to Minors Act (UTMA) is meant for transferring assets to minors but is not exclusive to education expenses, and typically the funds can be used for a variety of purposes, without the same tax advantages for education. A Health Savings Account (HSA) is used for health-related expenses, not education.

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