Discussion Question 5-17 (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. However, Joanna received a scholarship that paid for her tuition, fees, books, supplies, and room and board. So Andrea withdrew the funds from the 529 plan and bought Joanna a new car.

If an amount is zero, enter "0".

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a. What are the tax consequences to Andrea of withdrawing the funds? Andrea includes $in her gross income and Joanna includes $

Is Andrea or Joanna subject to a penalty?

Both Andrea and JoannaNeither Andrea nor JoannaOnly AndreaOnly Joanna

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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 529 plan to cover her room and board for future academic years.

What are the tax consequences to Andrea and to Joanna of using the $7,500 to pay for the room and board? Andrea includes $fill in the blank in her gross income and Joanna includes $