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SIE: Investment Companies & Packaged Products
SIE practice questionmedium529 Plans - Tax Treatment

The main tax benefit of 529 plan distributions used for qualified education expenses is:

  1. AThey are subject to capital gains tax only
  2. BThey are free from federal income tax✓ Correct answer
  3. CContributions are tax deductible at the federal level
  4. DAll distributions are taxed as ordinary income
Explanation

Why BThey are free from federal income tax

Earnings used for qualified education expenses are federally tax-free. Contributions may not be federally deductible, and C/D are incorrect.

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