Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

I wan to take out the already taxed $10000 contribution and keep for myself. Only use the growth $5000 for education. OR does all $15000 has to be used for education?

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Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

No. The $15,000 has to be used for education. For ESA distributions, room & board are also qualified expenses, even if you live off campus. You must be at least half time and a degree (or certificate) candidate for room & board to be considered a qualified expense.

Your ESA accounts consist of contributions and earnings.. For purposes of example, let's assume the $15,000 is your entire account balance, consisting of $10,000 contributions and $5000 earnings. 5000 / 15000 = 33.3%

This year you withdraw $5,000. You will get a form 1099-Q with $5,000 in box 1, $1667 in box 2 (33.3% of box 1) and $3333 in box 3.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)

-$3000 paid by tax free scholarship

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q

Box 1 of the 1099-Q is $5000

Box 2 is $1667

3000/5000=60% of the earnings are tax free

60%x1667= $1000

You have $667 of taxable income (1667-1000)

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5 Replies

Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

Take out from where? What kind of account or plan?

Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

Coverdell ESA.

Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

Coverdell ESA. Thanks.

Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

It all must be used for education expenses ... otherwise you will pay taxes & a penalty on the distribution.

Can I take out $15000 as qualified expense ($10000 initially contributed + $5000 growth over the years) to pay for $5000 education expense?

No. The $15,000 has to be used for education. For ESA distributions, room & board are also qualified expenses, even if you live off campus. You must be at least half time and a degree (or certificate) candidate for room & board to be considered a qualified expense.

Your ESA accounts consist of contributions and earnings.. For purposes of example, let's assume the $15,000 is your entire account balance, consisting of $10,000 contributions and $5000 earnings. 5000 / 15000 = 33.3%

This year you withdraw $5,000. You will get a form 1099-Q with $5,000 in box 1, $1667 in box 2 (33.3% of box 1) and $3333 in box 3.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)

-$3000 paid by tax free scholarship

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q

Box 1 of the 1099-Q is $5000

Box 2 is $1667

3000/5000=60% of the earnings are tax free

60%x1667= $1000

You have $667 of taxable income (1667-1000)

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