Series 7 Exam Question 132: Answer and Explanation

Question: 132

Which TWO of the following are TRUE regarding Coverdell Educational Savings Accounts?

I. Contributions are pre-tax.

II. Contributions are after-tax.

III. The maximum annual contribution is $2,000 per student.

IV. The maximum annual contribution is $5,500 per student.

• A. I and III
• B. I and IV
• C. II and III
• D. II and IV

Correct Answer: C

Explanation:

C. Coverdell Educational Savings Accounts (ESAs) allow contributions for students for up to $2,000 per year per student. Contributions are made from after-tax dollars but grow on a tax-deferred basis.