Z is a dependent beneficiary of a 529 savings plan established by her paretns. During the current year, Z received a $20,000 distribution and used it to pay $20,000 for tuition at a private university. Zs parents contributed $60,000 to the plan and earnings from investments total an additional $20,000.

1. How much of the $20,000 distribution may Z exclude from gross income?
2. Assume Z elects to join the work force rather than attend college and the entire $80,000 accumulated in the plan in distributed to Zs parents. How much is included in the parents gross income?