John is planning on attending Texas A&M in the fall of 2017 and spring of 2018.

Question

John is planning on attending Texas A&M in the fall of 2017 and spring of 2018. He has received scholarships for the year totaling $5,000 and the cost of attending Texas A&M is approximately $22,470 per year. Luckily for John, his parents have been contributing to a Coverdell ESA for most of his life. In 2017-2018, John may make a tax-free distribution from his Coverdell ESA of up to what amount?

A.$22,470

B.$25,550

C.$17,470

D.Amount is unlimited as long as it is used for qualified education expenses

A.$22,470

B.$25,550

C.$17,470

D.Amount is unlimited as long as it is used for qualified education expenses

Explanation / Answer

Withdrawals from ESA are tax free to the extent that the amount of withdrawal is not more than the beneficiary's qualified education expenses. Scholarships amount are to be deducted from qualified expenses, hence tax free withdrawal for John is $17470.

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