SIE practice questionmedium529 Plans — Prepaid vs Savings
What is the difference between a 529 prepaid tuition plan and a 529 savings plan?
- APrepaid plans lock in current tuition rates at specific institutions; savings plans invest in market-based portfolios with variable returns✓ Correct answer
- BThere is no difference — they are the same product
- CSavings plans guarantee a fixed return; prepaid plans have market risk
- DPrepaid plans are only available for graduate school education
Explanation
Why A — Prepaid plans lock in current tuition rates at specific institutions; savings plans invest in market-based portfolios with variable returns
Prepaid tuition plans allow prepayment of future tuition at today's rates, essentially locking in costs at participating (usually in-state public) institutions. Savings plans offer market-based investment options (similar to mutual funds) with returns that vary based on market performance. Savings plans are more flexible regarding school choice. Both offer federal tax-free growth for qualified expenses.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Investment Companies & Packaged Products questions
- Which statement about ABLE account contributions is TRUE?
- An ABLE (Achieving a Better Life Experience) account is designed for individuals who:
- If funds are withdrawn from a 529 plan for non-qualified expenses, what is the tax consequence?
- Who maintains control over a 529 plan account?
- In a limited partnership, the limited partners' liability is:
- A grandparent wants to contribute to a grandchild's 529 plan. Under the special gift tax provision, the grandparent can…
- Direct Participation Programs (DPPs) offer the primary tax advantage of:
- Contributions to a 529 plan are made with: