Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Which of the following is NOT a characteristic of a 529 Plan?

Tax-free growth
Income limits on contributions
Can be used for K-12 expenses
Funds can be transferred to siblings

The correct answer is: Income limits on contributions

The answer pertains to the characteristics of a 529 Plan, which offers a unique set of benefits designed to encourage saving for future educational expenses. The correct choice is that income limits on contributions are not a characteristic of a 529 Plan. This is pivotal because one of the appealing aspects of a 529 Plan is that anyone can contribute to the account, regardless of the contributor's income level. This means that families can maximize their savings potential without being restricted by their financial status, which is often the case with other tax-advantaged accounts. In contrast, the other options highlight true characteristics of a 529 Plan. For instance, tax-free growth enables the investment to grow without being subject to income tax at the federal level, provided the money is used for qualified educational expenses. Additionally, recent changes allow 529 Plan funds to be used for K-12 expenses, fostering wider educational funding opportunities. Lastly, the ability to transfer funds to siblings enhances the plan's utility, as it offers flexibility in managing educational savings across family members.