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Covering the cost of your kids’ private school and college educations can feel daunting. But the new tax laws make the prospect a bit more manageable—if you have the right know-how. Consider here the 529 plan: It’s a versatile savings account, sponsored by states or educational institutions, which works similarly to a 401(k) or IRA. The difference is that a 529 plan allows you to invest in mutual funds or similar investments to finance your child’s future college costs. To understand more and help you get smart quick, take this quiz.

  • 1. WHAT IS THE MAIN ADVANTAGE OF PUTTING MONEY INTO A 529 PLAN?

    (A)Contributions in a given year are tax-deductible

    (B)Earnings that accrue over time are not subject to federal taxes

    (C)There are no annual contribution limits

    (D)You can start one at any time

  • 2. IN A MAJOR SHIFT, THE NEW FEDERAL TAX CODE ALLOWS YOU TO USE MONEY FROM A 529 ACCOUNT TO PAY FOR PRIVATE SCHOOL TUITION FOR KINDERGARTEN THROUGH 12TH GRADE. WHAT IS THE ANNUAL CAP ON THIS AMOUNT?

    (A)$5,000

    (B)$7,500

    (C)$10,000

    (D)$12,500

  • 3. WHEN PAYING FOR COLLEGE, MONEY FROM A 529 ACCOUNT CAN BE USED FOR WHICH OF THE FOLLOWING EXPENSES?

    (A)Tuition

    (B)Room and board

    (C)Books and Computers

    (D)All of the above

  • 4. WHEN IT COMES TO AFFORDING COLLEGE, THE 529 SAVINGS PLAN HAS AN IMPACT ON WHICH OF THE FOLLOWING FORMS OF FINANCIAL AID?

    (A)Need-based grant aid

    (B)Academic merit scholarships

    (C)Federal student loans

    (D)Athletic merit scholarships

  • 5. WHICH OF THE FOLLOWING IS NOT TRUE OF A 529?

    (A)You, the donor, are in control of the account; the intended beneficiary isn’t

    (B)You can roll funds from one 529 into another one (for another child, for instance)

    (C)Third-party contributions are allowed, which means grandparents can add money

    (D)In a pinch, you can withdraw money for personal use without paying tax