Joe and Jean have five grandchildren, ages 19, 16, 15, 12, and 10. The have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the maximum amount allowable to each CESA for the 2015 taxable year. Joe and Jeans AGI for 2015 is $196,000.

(a) How much can Joe and Jean contribute to each grandchilds CESA in 2015?

(b) Assume that the 19-year-old granddaughter is a freshman in college and makes a withdrawal of $7,000 from her CESA during the year 2015. Her college expenses for 2015 were as follows: Tuition $1,500

Room & board 2,500

Books & supplies 500

The extra amount withdrawn was used as a down payment on an automobile that the granddaughter purchased during the year. She needed the automobile to drive to school rather than to ride the bus. What are the tax consequences of the $7,000 distribution to the granddaughter?