Question

question 3 of 10
which of the following is a difference between a prepaid tuition plan and a college savings plan?

a. one is free from federal income tax, while the other is not.

b. one can be used for community college expenses, while the other cannot.

c. one is limited in its investment options, while the other one isnt.

d. one covers all college expenses, while the other covers only tuition.

Explanation:

• Option A: Both prepaid tuition plans and college savings plans (like 529 plans) have tax advantages, so this is incorrect.
• Option B: Both can be used for community college expenses, so this is incorrect.
• Option C: Prepaid tuition plans typically have limited investment options (as they are tied to tuition costs), while college savings plans (e.g., 529 savings plans) offer more investment choices. This is a key difference.
• Option D: Prepaid tuition plans cover tuition (and sometimes fees), while college savings plans can cover a broader range of college expenses (not just tuition). But the description here is reversed, so this is incorrect.

Answer:

C. One is limited in its investment options, while the other one isn't.