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Gina receives a $2,900 distribution from her educational savings account. She uses $1,500 to pay for...

Gina receives a $2,900 distribution from her educational savings account. She uses $1,500 to pay for qualified higher education, expenses and $1,400 on a vacation. Immediately prior to the distribution, Gina's account balance is $5,000, $3,000 of which is her contributions. What is Gina's taxable income (after any exclusion) from the distribution? a. $1,400 b. $560 c. $840 d. $0 e. Some other amount

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Answer #1

Answer is $560.

Particulars Amount Explanation
Basis in ESA before distribution        3,000 a
Distribution        2,900 b
Contributions during the year               -   c
Value current year end        2,100 d= 5000-2900
Adj Qualified educational expenses        1,500 e
Basis portion of distribution        1,740 f = b*(a+c)/(d+b)
Earnings portion of distribution        1,160 g= b-f
Tax free earnings            600 h= g*e/b
Taxable distribution            560 I = g-h
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