Question 1

Tristan is a freshman in high school in a very low tax bracket and is looking for a way to save money for retirement (yes… It is never too early to start!).What strategy would be best for him to use?
A)529 plan
B)CD
C)Roth IRA
D)401(k)

Accepted Answer

While a 529 plan is primarily designed for education savings and a CD might have a low return rate, a Roth IRA is an excellent choice for someone who is young and in a low tax bracket. This is because contributions to a Roth IRA are made with after-tax dollars and grow tax-free, making it a great long-term investment. Additionally, the funds in a Roth IRA can be withdrawn penalty-free after age 59 ½, making it a good choice for retirement savings. However, it's important to note that there are income eligibility requirements for contributing to a Roth IRA.

Question 2

What are 529 plans?
A)Qualified tuition plans
B)Prepaid tuition plans
C)College savings plans
D)Both prepaid tuition plans and college savings plans

Accepted Answer

529 plans offer both prepaid tuition plans, where tuition is locked in at current rates, and college savings plans, where funds can be invested and grow tax-free for future education expenses. Having both options can provide flexibility for families depending on their financial goals and the specific needs of their children.

Question 3

In what life stage should you start an IRA?
A)Dependent life stage
B)Independent life stage
C)Early family life stage
D)Empty nest life stage

Accepted Answer

The best time to start an IRA is when a person becomes financially independent and starts earning an income. This typically happens after completing education and getting a job. Starting early allows for more time for the investments to grow and compound.

Question 4

In which life stage do you usually get a 529 plan?
A)Independent
B)Empty nest
C)Dependent
D)Adolescent

Accepted Answer

A 529 plan is usually set up while the beneficiary is still a dependent, meaning they are under the age of 18 and still living at home. This allows for the maximum amount of time to save for their education expenses before they start attending college.

Question 5

Which of the following are reasons for putting money into a CD (certificate of deposit)?
A)To earn a higher rate of interest on your savings than would typically be earned if savings were placed in one's checking account or standard savings account
B)To establish a solid savings foundation if you are not going to use the money for a longer period of time
C)To have a safe place to store savings while still being able to make frequent withdrawals from the account penalty-free
D)Both to earn more interest and to put money you don't plan to use in the short-term to work

Accepted Answer

CDs typically offer higher interest rates than standard savings accounts or checking accounts, and they are a good choice for funds that you don't plan to use in the short-term. Additionally, the longer the term of the CD, the higher the interest rate typically offered by the bank.

Question 6

With a credit union account you earn
A)interest.
B)dividends.
C)capital gains.
D)equity income.

Accepted Answer

Credit unions operate as not-for-profit financial institutions, and any profits they earn are returned back to their members in the form of dividends. Therefore, the correct choice is B) dividends. Interest is usually associated with loans and credit cards, capital gains relate to the increase in value of an investment, and equity income is associated with stock investments.

Question 7

Which of the following does a person not normally have in his or her dependent life stage?
A)529 college savings plans
B)Savings account
C)Checking account
D)Certificates of deposit

Accepted Answer

The answer of Which of the following does a person...

Question 8

All 50 states and the District of Columbia sponsor at least one type of this savings,which is when funds are set aside to go toward post-secondary education expenses.
A)Certificate of deposit
B)529 plan
C)Savings bonds
D)401(k)plan

Accepted Answer

A 529 plan is specifically designed to help save for education expenses and is offered by all 50 states and the District of Columbia. It offers tax advantages and flexible investment options. The other options listed are not specifically designed for education savings.

Question 9

What is a savings account designed for?
A)Spending money
B)Counting money
C)Saving money
D)Investing money

Accepted Answer

A savings account is designed for saving money, hence the name. It is a low-risk option for people to store their money and earn interest on it over time.

Question 10

A 529 plan is
A)funds set aside to go toward post-secondary education expenses.
B)an account which allows the holder to write checks against deposited funds.
C)funds set aside to be withdrawn after age 59.5 without penalty.
D)a plan where taxes are not paid on the money or interest earned until the year it is withdrawn.

Accepted Answer

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. The funds in a 529 plan can be used to pay for qualified education expenses, such as tuition, books, and room and board at eligible educational institutions.

Question 11

Which best defines a 529 plan?
A)An account that is designed to help finance future college expenses.
B)A time deposit account where the depositor agrees on a time period and sum of money.
C)An account that allows the holder to write checks against funds deposited in the account.
D)Funds set aside to be withdrawn after the age of 59.5 without penalty.

Accepted Answer

A 529 plan is a college savings plan designed to help finance future college expenses. It offers tax advantages to the account holder and can be used for qualified higher education expenses such as tuition, room and board, and books. It is different from a time deposit account, checking account, or retirement account.

Question 12

A prepaid tuition plan does not include
A)locking into prices at eligible and public and private colleges and universities.
B)state plans guaranteed or backed by the state.
C)age/grade limits for the beneficiary.
D)open enrollment all year.

Accepted Answer

A prepaid tuition plan typically requires enrollment during a specific time frame and may have restrictions on when and how you can make contributions. Therefore, open enrollment all year is not typically included in these plans. The other options listed - locking into prices, state backing/guarantees, and age/grade limits - are all common features of prepaid tuition plans.

Question 13

Which of the following is not included in the dependent life stage?
A)Certificate of deposit
B)College savings plan
C)Student loans
D)Savings account

Accepted Answer

Student loans are not included in the dependent life stage because they are a form of debt, not a savings or investment.

Question 14

When opening a savings account it is important to consider
A)APY.
B)minimum balance.
C)fees.
D)all of the options are correct.

Accepted Answer

All of the options mentioned (APY, minimum balance, and fees) should be considered when opening a savings account. APY (annual percentage yield) determines the interest rate you will receive on your savings, the minimum balance is the amount you need to keep in the account to avoid fees, and fees can eat into your savings. Therefore, it is important to consider all of these factors before choosing a savings account.

Question 15

Accounts that are opened in the dependent life stage include
A)savings.
B)college savings.
C)IRA.
D)both savings and college savings accounts.

Accepted Answer

Accounts that are typically opened in the dependent life stage are savings accounts and college savings accounts, as parents want to save for their children's future expenses such as education. IRA accounts are not typically opened for dependents, as they are retirement accounts that require earned income to contribute. Therefore, the best choice is D, as it includes both savings and college savings accounts.

Question 16

If you expect your income taxes to be higher when you retire and you are saving for retirement,you should invest in
A)traditional IRA.
B)roth IRA.
C)certificate of deposit.
D)gold.

Accepted Answer

With a Roth IRA, you contribute post-tax dollars and your money grows tax-free. Since you expect your income taxes to be higher in retirement, it makes more sense to pay taxes on your contributions now, rather than paying taxes on your withdrawals when you retire. This way, you'll be able to withdraw all of your money tax-free in retirement.

Question 17

A ________ is an account designed to encourage saving for future college expenses and is legally known as a "qualified tuition plan."
A)CD
B)529 plan
C)roth IRA
D)checking account

Accepted Answer

A 529 plan is a specific account designed to encourage saving for college expenses and is legally known as a "qualified tuition plan." CDs, Roth IRAs, and checking accounts are not specifically designed for college savings.

Question 18

You can use the money in a 529 plan for all except
A)tuition.
B)transportation to and from college.
C)room and board.
D)books and mandatory fees.

Accepted Answer

You can use the money in a 529 plan for tuition, room and board, books and mandatory fees, but not for transportation to and from college.

Question 19

A 529 plan is used to save for
A)a car.
B)retirement.
C)a house.
D)college.

Accepted Answer

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. It is specifically meant for saving for college expenses such as tuition fees, books, room and board, and more. Therefore, it is the best choice for individuals who want to save for college. Options A, B, and C are not valid for a 529 plan.

Question 20

What plan is also known as a qualified tuition plan?
A)Qualified college savings plan
B)Savings plan
C)529 plan
D)College qualification plan

Accepted Answer

A 529 plan is also known as a qualified tuition plan and is specifically designed to help with college savings. Option A is a similar choice, but doesn't explicitly mention the plan as a 529 plan. Option B is too general, and option D isn't a commonly used term for this type of plan.

Quiz 3: Financial Instruments and Institutions

Tristan is a freshman in high school in a very low tax bracket and is looking for a way to save money for retirement (yes… It is never too early to start!) .What strategy would be best for him to use?

What are 529 plans?

In what life stage should you start an IRA?

In which life stage do you usually get a 529 plan?

Which of the following are reasons for putting money into a CD (certificate of deposit) ?

With a credit union account you earn

Which of the following does a person not normally have in his or her dependent life stage?

All 50 states and the District of Columbia sponsor at least one type of this savings,which is when funds are set aside to go toward post-secondary education expenses.

What is a savings account designed for?

A 529 plan is

Which best defines a 529 plan?

A prepaid tuition plan does not include

Which of the following is not included in the dependent life stage?

When opening a savings account it is important to consider

Accounts that are opened in the dependent life stage include

If you expect your income taxes to be higher when you retire and you are saving for retirement,you should invest in

A ________ is an account designed to encourage saving for future college expenses and is legally known as a "qualified tuition plan."

You can use the money in a 529 plan for all except

A 529 plan is used to save for

What plan is also known as a qualified tuition plan?