CFP - General Principles of Financial Planning (15% of the exam) - Section B.14

Education savings vehicles

529 plans (savings and prepaid), Coverdell education savings accounts, UTMA and UGMA custodial accounts, Series EE and I savings bonds, and Roth IRA withdrawals for education: contribution limits, tax treatment, ownership and control, financial-aid impact, and qualified expenses.

Internal Revenue Code Section 529Internal Revenue Code Section 530

Practice question for this objective

Free sampleGeneral Principles of Financial Planningmedium

Daniel is 24, has finished his degree, and is the beneficiary of a Section 529 account his parents opened for him nine years ago. It still holds 28,000 dollars, and nothing further will be spent on education. Daniel earned 4,000 dollars in wages this year and has made no Individual Retirement Account contribution. His father asks whether the leftover balance can be moved into Daniel's Roth IRA under the rollover route created by SECURE 2.0. Which response is correct?

AThe whole 28,000 dollars may be rolled into Daniel's Roth IRA this year, because the governing constraint is the lifetime cap on these rollovers and the account is nowhere near it.
BNo rollover is permitted this year, because the account has been open for fewer than fifteen years; once it qualifies, each year's transfer is capped by Daniel's earned income and the annual Roth IRA limit, with a 35,000 dollar lifetime cap. Correct
CUp to 4,000 dollars may be rolled into Daniel's Roth IRA this year, because his earned income for the year sets the ceiling and no further condition stands in the way of the transfer.
DNo rollover is permitted at any point, because Daniel has left education and the balance can now leave the plan only as a non-qualified distribution taxed on its earnings.

The SECURE 2.0 Section 529 to Roth IRA rollover requires a fifteen year old account and is capped annually by earned income and the Roth limit. SECURE 2.0 allows a Section 529 balance to be rolled into a Roth IRA for the same beneficiary, but it layers several conditions. The account must have been maintained for at least fifteen years, and this one is nine years old, so the transfer cannot happen yet. Contributions made in the preceding five years and their earnings are also ineligible. Once the account does qualify, each year's rollover counts against the beneficiary's annual Roth IRA contribution limit and cannot exceed the beneficiary's earned income for that year, and 35,000 dollars is the lifetime maximum for the beneficiary.

Why A is wrong: The lifetime cap is real but it is not the only constraint; each year's rollover is also limited by the annual Roth IRA contribution limit, so a single transfer of the whole balance is not permitted even for an eligible account.

Why B is correct: Correct: the fifteen year seasoning requirement is a threshold test that this account fails, and the annual and lifetime caps then govern once the account does qualify, so the family must wait rather than transfer now.

Why C is wrong: Earned income does cap the amount once the account qualifies, but this answer ignores the requirement that the Section 529 account has been maintained for at least fifteen years, which this one has not.

Why D is wrong: This describes the position before SECURE 2.0 and ignores the rollover route it created; leaving education does not by itself disqualify a Section 529 balance from moving to a Roth IRA.

See more CFP practice questions, answers explained.

Exam traps in General Principles of Financial Planning

Answers that look right on this material and are not. Each one is a distractor from a different question in the CFP bank for this domain.

They may retitle the custodial account as a Section 529 plan owned by Tom, naming Luke as beneficiary and keeping the right to change that beneficiary later, with no sale and no tax consequence.
Why it is wrong: This is the outcome the parents want, but it treats the custodial money as still theirs; a Uniform Transfers to Minors Act gift is irrevocable, so it cannot be re-owned by a parent or redirected to another beneficiary.
The entire 10,000 dollar distribution is ordinary income to Anisha, and the 10 percent additional tax applies to the full amount because none of it paid a qualified expense.
Why it is wrong: Tempting because the whole withdrawal was spent on something unrelated to education, but a Section 529 distribution is split between contributions and earnings, and the contribution portion has already been taxed, so it is never brought back into income.
40,000 dollars, because his basis is the 260,000 dollar value on the date of the transfer.
Why it is wrong: This applies the step to date of death value that Internal Revenue Code Section 1014 gives to property acquired from a decedent. It is the single most common error on this topic and it is wrong here because Frances is alive and the transfer is a gift, so Section 1015 carryover basis governs, not Section 1014.

Examworthy is not affiliated with or endorsed by CFP Board. Original, blueprint-aligned practice material only.