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 $"$O$".$

a$.$ What are the tax consequences to Andrea of withdrawing the funds?

Andrea includes $3$

in her gross income and Joanna includes s$

Is Andrea or Joanna subject to a penalty?

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, $$7,500$ of the fund balance was used to pay for Joannas room and board. The remaining amount was left in the $$529$ plan to cover

her room and board for future acadernic 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 $5$

in her gross income and Joanna includes $