A grandparent funds a 529 for one grandchild, a cousin is born with Down syndrome, and a niece wants exposure to apartment buildings without buying property. Three goals, three different products, three different tax regimes. The exam will test which wrapper fits which fact pattern.
A municipal fund security is an investment product issued by a state or municipal entity that resembles a mutual fund in structure but is exempted from Investment Company Act registration. The Municipal Securities Rulemaking Board (MSRB) writes the rules; FINRA enforces them against broker-dealers. Three products dominate: 529 plans, ABLE accounts, and Local Government Investment Pools (LGIPs).
A 529 plan is a tax-advantaged savings vehicle for education expenses, authorized under IRC Section 529. Two flavors exist:
- Savings plans: the more common type. Contributions buy units in age-based or static portfolios. Investment risk falls on the account owner.
- Prepaid tuition plans: lock in current tuition rates at participating in-state schools. Issued by the state, often with state-residency requirements.
Common mistakes
- Confusing the K-12 limit with the broader qualified higher-education list. Under the 2017 act K-12 was tuition only, capped at $10,000 per year per beneficiary. The 2025 act widened the expense list for distributions made after July 4, 2025, and it raises the ceiling to $20,000 for taxable years beginning after 2025.
- Crediting the wrong statute. The Tax Cuts and Jobs Act of 2017 added K-12 tuition; the SECURE Act of 2019 added registered apprenticeships and $10,000 lifetime of student loan repayment; SECURE 2.0 added the capped 529-to-Roth rollover in 2024.
- Treating the 529 beneficiary as the owner. The owner controls and can withdraw or reassign at will; the beneficiary has no legal claim.
Bottom line
- 529 plans: owner controls the account and can reassign the beneficiary; growth is tax-free for qualified education, with a K-12 tuition cap of $10,000 a year under the 2017 act and $20,000 for taxable years beginning after 2025.
- Statute map for 529 expansions: Tax Cuts and Jobs Act of 2017 = K-12 tuition; SECURE Act of 2019 = registered apprenticeships and $10,000 lifetime student loan repayment; SECURE 2.0 = 529-to-Roth rollover (15-year account, annual Roth limit, $35,000 lifetime).
- 529 forward averaging: a single contribution can front-load five years of gift exclusions, up to $95,000.
- ABLE accounts: require disability onset before age 26; $19,000 annual contribution cap (2025); preserve SSI and Medicaid eligibility.
Exam shortcut
529 = education (K-12 cap $10K under the 2017 act, $20K from 2026); ABLE = disability ($100K SSI exclusion); LGIP = local government cash management. Three wrappers, three purposes. When a 529 stem names an act, sort by year: 2017 gave K-12, 2019 gave apprenticeships and loans, 2022 gave the Roth rollover, 2025 doubled the K-12 cap. Pass-through pyramid: DPP issues K-1, REIT issues 1099-DIV (ordinary), hedge fund issues K-1.
The full lesson (about 3,475 words, 23 min read) adds 2 worked examples, all 7 common mistakes, a self-check, free in the app.
Learning objectives
- B9
- B10
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