Question

2
which of the following is a difference between a prepaid tuition plan and a college savings plan?
a. one can be used for community college expenses, while the other cannot.
b. one covers all college expenses, while the other covers only tuition.
c. one is limited in its investment options, while the other isnt.
d. one is free from federal income tax, while the other is not.

Explanation:

Prepaid tuition plans typically cover only tuition (and sometimes fees) at eligible institutions, while college savings plans (like 529 savings plans) can be used for a broader range of college expenses (tuition, fees, room, board, books, etc.). Option A is incorrect because both can often be used for community college. Option C is incorrect because prepaid plans usually have no investment options (they lock in tuition rates), and savings plans have investment options. Option D is incorrect because both 529 prepaid and savings plans offer federal tax benefits for qualified withdrawals.

Answer:

B. One covers all college expenses, while the other covers only tuition.