529 Plan

B is correct. The 529 plan is most suitable for Marcus and Lisa because it has no income limits (critical given Marcus's $450,000 income) and no age limits for beneficiaries (allowing them to potentially use remaining funds for their own education). While 529 plans limit K-12 to $10,000 annual tuition, they offer superior flexibility for high-income earners and multi-generational planning.

A is incorrect because Coverdell ESAs have income phaseouts that would likely disqualify Marcus and Lisa at $450,000 annual income. C is incorrect because Coverdell contributions must stop when the beneficiary turns 18 and funds must be used by age 30, limiting flexibility. D is incorrect because 529 K-12 coverage is limited to $10,000 tuition only and does not include room, board, or supplies for K-12 expenses.

C is correct. Section 529 plans allow tax-free withdrawals of up to $10,000 per year for K-12 tuition expenses. This limit applies only to elementary and secondary school tuition and does not include K-12 room, board, supplies, or other expenses.

A ($2,000) is the annual contribution limit for Coverdell ESAs, not the 529 K-12 withdrawal limit. B ($5,500) is not a 529-related threshold. D (unlimited) is incorrect because while college expenses are unlimited, K-12 tuition is specifically capped at $10,000 annually.

B is correct. Calculate: Each spouse can contribute 5 × $19,000 (annual exclusion) = $95,000 per person. For a married couple: $95,000 × 2 = $190,000 total to one beneficiary using the 5-year gift tax acceleration election. This amount is spread over 5 years for gift tax purposes but can be contributed all at once.

A ($95,000) is the superfunding amount for a single person, not a married couple. C ($285,000) incorrectly adds an extra contribution beyond the proper calculation. D ($380,000) incorrectly doubles the correct answer, possibly confusing the calculation method.

C is correct (the EXCEPT answer). 529 plans do NOT have a $2,000 annual contribution limit. This is the limit for Coverdell ESAs. 529 plan contribution limits are set by states and can reach $500,000 or more over the account's lifetime, with no annual federal limit.

A is accurate: 529 plans provide tax-free withdrawals for qualified higher education expenses including tuition, mandatory fees, books, supplies, computers, and room and board. B is accurate: 529 plans are classified as municipal fund securities, requiring delivery of an official statement or offering circular rather than a traditional prospectus. D is accurate: Unlike Coverdell ESAs, 529 plans have no age restrictions, allowing beneficiaries of any age to use the funds.

B is correct. Statements 2 and 3 are accurate.

Statement 1 is FALSE: Not all $15,000 qualifies. For K-12 education, 529 plans only cover up to $10,000 annual tuition. The $8,000 tuition is fully qualified, but room and board, uniforms, supplies, and extracurricular activities do NOT qualify for K-12 (though they would for college).

Statement 2 is TRUE: Only the $8,000 tuition portion qualifies for tax-free treatment under the K-12 rules.

Statement 3 is TRUE: The remaining $7,000 ($4,000 room/board + $2,000 uniforms/supplies + $1,000 extracurricular) is a non-qualified withdrawal. The earnings portion of this $7,000 would be subject to ordinary income tax plus a 10% penalty.

Statement 4 is FALSE: The 10% penalty applies only to the earnings portion of the non-qualified withdrawal, not to the principal contributions. If the account has a 60% principal / 40% earnings mix, only 40% of the $7,000 ($2,800) would face the penalty, not the full $7,000.