- For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage; the catch-up contribution for an individual age 55 or older is $1,000. Which of the following statements about a married couple's 2026 HSA contributions is correct?
Answer: Spouses ages 56 and 62, both covered by the same family HDHP and each maintaining an HSA, may contribute a combined $10,750.
IRC § 223(b) applies one family HSA contribution limit to a married couple's combined HSAs; the limit is not doubled when both spouses maintain HSAs. Each spouse age 55 or older may make a $1,000 catch-up contribution, but only to an HSA in that spouse's own name. Thus spouses aged 56 and 62 with family HDHP coverage may contribute $8,750 + $1,000 + $1,000 = $10,750. The option giving each HSA the full $8,750 family limit doubles the limit. The option putting both catch-ups into a single HSA ignores the requirement that a spouse's catch-up go to that spouse's own HSA. The option denying the catch-up to a married individual with self-only coverage misstates the catch-up rule, which is available regardless of coverage type.
A 56-year-old client was covered by a self-only high-deductible health plan for all of 2026 and is not enrolled in Medicare. She is otherwise eligible for an HSA. Her employer contributes $500 directly to her HSA during 2026. The 2026 self-only HSA limit is $4,400, and the catch-up contribution for age 55 or older is $1,000.
What is the maximum amount the client may contribute to her HSA for 2026? Answer: $4,900, the combined $5,400 limit reduced by the $500 employer contribution made to her HSA.
Governing authority: IRC §223. For 2026, the self-only HSA limit is $4,400, and the age-55-or-older catch-up adds $1,000, giving a combined limit of $5,400. All contributions, including employer contributions, count toward the annual HSA limit. Because the employer contributed $500, the client may contribute only $4,900 herself. The $4,400 figure ignores the catch-up, the $5,400 figure ignores the employer contribution, and the $5,900 figure improperly adds the employer contribution to the combined limit.
A 14-year-old child has $6,500 of unearned income in 2026 from a UTMA account established by a grandparent. The child has no earned income, and the child's 2026 standard deduction as a dependent is $1,350. Under the kiddie tax, unearned income above $2,700 is taxed at the parent's marginal rate.
What amount of the child's unearned income is taxed at the parent's marginal rate? Answer: $3,800, the amount of unearned income above the $2,700 kiddie tax threshold.
Governing authority: IRC § 1(g). The kiddie tax applies the parent's marginal rate to the portion of a child's unearned income above the statutory threshold. With $6,500 of unearned income, the amount above $2,700 is $3,800. The $2,700 figure is the threshold, not the taxed amount. The $5,150 figure subtracts only the $1,350 standard deduction; the $2,700 threshold covers both that deduction and the next $1,350, which is taxed at the child's own rate, so not all of the income left after the deduction is taxed at the parent's rate. The $6,500 figure ignores the threshold entirely.
- In 2026, up to $20,000 per beneficiary may be distributed from a 529 plan each year to pay for K-12 expenses. Which of the following statements regarding these K-12 distributions is correct?
Answer: The $20,000 annual limit applies to tuition at an elementary or secondary school, not to room and board.
IRC § 529(c)(7) and (e)(3)(A), as amended by the OBBBA for 2026, allow up to $20,000 per beneficiary per year for K-12 expenses: tuition at a public, private, or religious elementary or secondary school plus the newly added K-12 expenses (curriculum and books, online materials, tutoring, test fees, dual enrollment, and educational therapies). K-12 room and board is not among them, unlike higher-education room and board, which is qualified when the student is enrolled at least half-time. K-12 distributions do not reduce the separate $35,000 lifetime 529-to-Roth rollover cap, and the half-time enrollment condition applies only to higher-education room and board, not to K-12 tuition.
A married couple filing jointly are the only contributors to a Coverdell ESA for their 12-year-old child. Their 2026 modified adjusted gross income (MAGI) is $205,000. The Coverdell contribution limit is $2,000 per designated beneficiary, and the phase-out range for joint filers is $190,000 to $220,000.
What is the maximum total Coverdell contribution the couple may make for this child in 2026? Answer: $1,000, because the couple's $205,000 MAGI is halfway through the $190,000-to-$220,000 phase-out range.
Governing authority: IRC § 530(b)(1)(A)(iii) (the $2,000 Coverdell ESA contribution limit) and IRC § 530(c)(1) (the phase-out). Coverdell contributions are phased out proportionally for joint filers with modified adjusted gross income between $190,000 and $220,000. At $205,000, the couple is halfway through the range, so the $2,000 limit is reduced by 50 percent to $1,000. The $2,000 figure ignores the phase-out, the $1,500 figure uses a 25 percent reduction, and the $0 figure incorrectly assumes the phase-out is complete at $205,000.
A 40-year-old client has an HSA balance of $12,000 and a taxable brokerage account with $20,000. She has a qualifying out-of-pocket medical expense of $3,000 and adequate emergency savings. The HSA is invested for long-term retiree medical costs.
Which strategy is most suitable for maximizing the long-term value of her tax-advantaged assets? Answer: Pay the $3,000 bill from the taxable account and reimburse herself from the HSA in a later year, keeping documentation.
Governing authority: IRC §223(f). An HSA distribution is tax-free when it reimburses a qualified medical expense incurred after the HSA was established, and there is no deadline for claiming that reimbursement. Paying the bill from the taxable account and delaying the HSA reimbursement preserves the HSA's tax-free growth for future qualified medical costs. Paying from the HSA now forfeits that growth. Shifting the money to a Roth IRA sacrifices the HSA's unique medical-expense tax advantage. Leaving the bill unpaid until next year is not a suitable strategy, and the tax-rate rationale is irrelevant because a qualified HSA distribution is tax-free.
- Under federal law, amounts in a 529 plan may be rolled over to a Roth IRA for the designated beneficiary. Which of the following statements about the 529-to-Roth rollover is correct?
Answer: The rollover may be made only after the 529 account has been open 15 years, and the amount rolled over counts against the beneficiary's annual IRA contribution limit.
IRC § 529 (the 529-to-Roth rollover, added by the SECURE 2.0 Act) requires that the 529 account be open at least 15 years, treats the rollover as an IRA contribution that counts against the beneficiary's annual IRA contribution limit, excludes amounts attributable to contributions made within the preceding five years, and caps cumulative rollovers at $35,000 per beneficiary. The statement combining the 15-year requirement with the annual-limit interaction is therefore correct. The statement that the full account balance may be rolled over in a single year ignores the annual IRA contribution limit. The statements that the rollover does not count against the annual IRA limit, or is wholly exempt from it, both misstate the annual-limit treatment that is central to the rule.
A parent has both a 529 plan and a Coverdell ESA for the same child. The child will attend private elementary school in 2026. The parent's MAGI is below the Coverdell phase-out range, and the child's tuition is more than the available account balances. In 2026, 529 distributions for K-12 expenses are qualified up to $20,000.
Which statement is correct? Answer: The parent may use both accounts: 529 funds are qualified for K-12 tuition up to $20,000, and Coverdell funds may also pay elementary school expenses.
Governing authority: IRC §529 and IRC §530. A 529 distribution is qualified for K-12 tuition up to the applicable annual limit, and a Coverdell ESA distribution is also qualified for elementary and secondary school expenses. There is no combined $20,000 cap across both accounts, no requirement to exhaust the Coverdell before the 529, and no rule that qualified education expenses must be paid directly to the school rather than reimbursed.
- In 2026, the Coverdell education savings account (ESA) contribution limit is $2,000 per beneficiary, phased out for married contributors filing jointly whose MAGI is between $190,000 and $220,000. For such a contributor, which of the following correctly states the maximum contribution for one grandchild beneficiary?
Answer: MAGI of $205,000 permits a $1,000 contribution, because $205,000 is halfway through the phase-out range.
IRC § 530 reduces the $2,000 Coverdell ESA limit proportionately when the contributor's own MAGI falls within the phase-out range. At $205,000, a joint filer is halfway through the $190,000-$220,000 range, so the reduction is 50% and the limit is $2,000 × 0.50 = $1,000. At exactly $190,000 the reduction is zero, leaving the full $2,000. Above $220,000 the limit is $0, not $1,000. The phase-out is measured by the contributor's MAGI; the income of the beneficiary's parents is irrelevant.
A 20-year-old beneficiary has a 529 plan that has been open for 16 years. The account contains $65,000: $42,000 of contributions and $23,000 of earnings. Of the contributions, $8,000 were made within the last five years. He has earned income of at least $7,500 this year, has made no other regular IRA contribution this year, and has never previously made a 529-to-Roth rollover. The 2026 annual IRA/Roth contribution limit is $7,500; the lifetime 529-to-Roth rollover limit is $35,000.
Which statement is correct about a 529-to-Roth IRA rollover this year? Answer: A maximum of $7,500 may be rolled over this year, because the annual limit is binding and the recent contributions are not yet eligible.
Governing authority: IRC § 529(c)(3)(E) and IRC § 408A. A 529-to-Roth rollover is treated as a Roth IRA contribution for the year, so this year's maximum is the lesser of the annual IRA/Roth contribution limit ($7,500) and the beneficiary's earned income; the facts state earned income of at least $7,500 and no other regular IRA contribution, so the cap is $7,500. The $35,000 lifetime cap does not increase the annual cap. Contributions made within the last five years, and earnings attributable to those contributions, are not eligible for the rollover, so the $8,000 in recent contributions must wait until they are outside the five-year lookback. The $34,000 figure ignores the annual cap and the fact that older earnings may also be rolled over; the $35,000 figure is a lifetime cap, not a current-year cap; and the $65,000 figure ignores the annual cap, the five-year restriction, and the $35,000 lifetime cap.
- For 2026, the HSA contribution limit is $4,400 for self-only coverage, with a $1,000 catch-up for individuals age 55 or older. Which of the following statements about HSA contributions for 2026 is correct?
Answer: A 58-year-old with self-only HDHP coverage who participates in a limited-purpose dental-only health FSA may contribute $5,400 to an HSA.
IRC § 223 makes an individual HSA-eligible when covered by an HDHP and not covered by disqualifying coverage, which includes a general-purpose health FSA and enrollment in Medicare. A limited-purpose FSA covering only dental and vision does not disqualify the individual. A 58-year-old with self-only HDHP coverage and only a dental-only FSA may contribute the $4,400 self-only limit plus the $1,000 catch-up, for $5,400. The general-purpose FSA and the Medicare enrollment each destroy HSA eligibility, so the stated $5,400 contribution is wrong in those options. The employer's $1,000 contribution counts toward the $5,400 combined limit, reducing the employee's remaining room to $4,400, not $5,400.
A grandparent transfers $50,000 of securities to a UTMA account for a 10-year-old grandchild and names herself as custodian. The account is intended for the grandchild's future education.
Which statement is correct about this transfer? Answer: The transfer is a completed gift for gift tax purposes, but the account will be included in the grandparent's gross estate if she dies before the account terminates.
Governing authority: Uniform Transfers to Minors Act and IRC §§2503, 2038. A transfer to a UTMA account is an irrevocable completed gift and generally qualifies for the gift tax annual exclusion. However, if the donor names herself as custodian and dies before the custodianship ends, the custodial property is included in her gross estate because she held a power over the beneficial enjoyment of the property. The transfer is not revocable, the account is not a separate trust, and the termination age is the state-specified age, not automatically 18 in every state.
In tax year 2026, a 35-year-old employee is enrolled in a self-only HDHP. She also enrolls in her employer's limited-purpose health FSA, which reimburses only dental and vision expenses. She has no other disqualifying coverage and is not claimed as a dependent.
Which statement is correct about her eligibility to contribute to an HSA? Answer: She may contribute to an HSA; the FSA described in the scenario is not disqualifying coverage under the HSA eligibility rules.
Governing authority: IRC § 223(c)(1)(B), which treats coverage for dental and vision care as permitted coverage. A health FSA limited to dental and vision benefits is not disqualifying coverage for HSA eligibility. A general-purpose health FSA would disqualify her, but the dental/vision-only FSA described here does not. There is no combined HSA/FSA contribution limit, no written waiver is required, and the FSA is not required to be post-deductible.
- Which of the following statements regarding a Uniform Transfers to Minors Act (UTMA) custodial account is correct?
Answer: The minor owns the account assets, the custodian manages the account until the minor reaches the age of majority, and the transfer is irrevocable.
Under the Uniform Transfers to Minors Act, a transfer to a custodial account is an irrevocable completed gift: the minor owns the assets immediately, and the custodian merely manages the property until the age of majority. Income from UTMA assets is reported on the minor's tax return and may be subject to the kiddie tax on unearned income above $2,700 for 2026. The donor cannot revoke the transfer or change the beneficiary; the income is not taxed to the custodian; and UTMA assets are not restricted to qualified education expenses, so no 10% additional tax applies to other uses for the minor's benefit.
