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NEW QUESTION: 3
Uncle Scrooge (uncharacteristically) wants to set up a Section 529 college savings plan for his nephew, Louie. If he does so:
A. he can contribute at most $2,000 a year.
B. and Louie decides not to go to college, Uncle Scrooge can name Louie's brother, Huey, as the beneficiary of the plan without any tax consequences.
C. any withdrawals that Louie makes to cover tuition, books, and room and board will be free from both federal and state taxes.
D. his contributions will be tax deductible.
Answer: B
Explanation:
Explanation/Reference:
Explanation: If Uncle Scrooge sets up a Section 529 college savings plan for his nephew Louie, and Louie decides not to go to college, Uncle Scrooge can name Louie's brother, Huey, as the beneficiary of the plan without any tax consequences. Unlike the Coverdell Education Savings Plan, there is no limit to the contribution that can be made, although gift taxes may apply if the contribution exceeds the threshold for gifts. Scrooge's contributions are not tax deductible, and although any withdrawals Louie makes will be free from federal taxation, different states have different rules regarding the taxation of 529 plans.