Which sentence best describes an incentive for saving for education with a 529 plan?

A. The income generated by a 529 plan is tax exempt.

B. Colleges offer a reduced price for tuition paid for with funds from a 529 plan.

C. There is no penalty if withdrawals are made for non-educational-related expenses.

D. The income generated by a 529 plan is tax deferred.

Question

Mathematics

Aleena Dudley

5 February, 01:58

Which sentence best describes an incentive for saving for education with a 529 plan?

A. The income generated by a 529 plan is tax exempt.

B. Colleges offer a reduced price for tuition paid for with funds from a 529 plan.

C. There is no penalty if withdrawals are made for non-educational-related expenses.

D. The income generated by a 529 plan is tax deferred.

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Answers (1)

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Lexi Ashley · Answer 1

D. The income generated by a 529 plan is tax deferred.

Explanation:

Going to college can cause a lot of trouble when you're financially unstable or incapable of dealing with college tuitions and other related expenses. This is the reason why the "529 Plan" was made as an offer to those who are trying to save up for college.

The 529 plan has many investment options. It allows a person to invest without worrying about federal income taxes, since the investment is not subjected to it. So, this means that the investment grows annually because it is tax-deferred. Withdrawals which are related to educational expenses are also tax-free. Withdrawals which are non-related to education are subject to a 10% penalty depending on the person's gains.