SIE practice questionmedium529 Plans - Tax Treatment
The main tax benefit of 529 plan distributions used for qualified education expenses is:
- AThey are subject to capital gains tax only
- BThey are free from federal income tax✓ Correct answer
- CContributions are tax deductible at the federal level
- DAll distributions are taxed as ordinary income
Explanation
Why B — They 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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