Question

CHAPTER 5 Gross Income: Ex 17. LO.2 Andrea entered into a $ 529 qualified tuition program for the benefit of her daughter, Joanna. Andrea contributed $15,000 to the fund. The fund balance had accumulated to $25,000 by the time Joanna was ready to enter college. How- ever, Joanna received a scholarship that paid for her tuition, fees, books, supplies, and room and board. Therefore, Andrea withdrew the funds from the § 529 plan and bought Joanna a new car a. What are the tax consequences to Andrea of withdrawing the funds? b. Assume instead that Joanna's scholarship did not cover her room and board, which cost $7,500 per academic year. During the current year, $7,500 of the fund balance was used to pay for Joanna's room and board. The remaining amount was left in the S 529 plan to cover her room and board for future aca- demic years. What are the tax consequences to Andrea and to Joanna of using the $7,500 to pay for the room and board?

Answer 1

as the HOMEWORKLIB POLICY, the only first question should be answered. kindly take note of it

Answer A:

Andrea must consider $10,000 (25000-15000) in her gross income.

Answer B:

As Joanna’s scholarship did not cover her room and board which cost $7500 per academic year, neither Andrea nor Joanna has tax consequences.