Albert established a qualified tuition program for each of his twins, Kim and Jim. He started each fund with $20,000 when the children were 5 years old. Albert made no further contributions to his children's plans. Thirteen years later, both children have graduated from high school. Kim's fund has accumulated to $45,000, while Jim's has accumulated to $42,000. Kim decides to attend a state university, which will cost $60,000 for four years (tuition, fees, room and board, and books). Jim decides to going to work instead of going to college. During the current year, $7,500 is used from Kim's plan to pay the cost of her first semester in college. Because Jim is not going to go to college now or in the future, Albert withdraws the $42,000 plan balance and gives it to Jim to start his new life after high school.
a. During the period since the plans were established, should Albert or the twins have been including the annual plan earnings in gross income?
No. The plans' earnings are excluded from Albert's and the twins' gross income.
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Nearly all, if not all, states have created programs whereby parents can in effect prepay their child's college tuition. The prepayment serves as a hedge against future increases in tuition. Congress has created an exclusion provision for these programs.
b. What are the tax consequences to Kim and Albert of the $7,500 being used for the first semester's higher education costs?
Neither Albert nor Kim report the $7,500 in gross income.
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c. Because of her participation in the qualified tuition program, Kim received a 10% reduction in tuition charges; so less than $7,500 was withdrawn from her account. Is either Albert or Kim required to include the value of this discount in gross income?
Neither Albert nor Kim report the value of the discount in gross income.
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d. What are the tax consequences to Albert of Jim's qualified tuition program being closed?
Albert must include $ in his gross income. How much?
Need the answer for D
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