Hi, Thanks for the response, but I'm not talking about using a car as a qualified education expense. I fully realize I have to pay taxes on the distribution (unlike if I used it towards tuition), but I should NOT have to pay a 10% penalty per IRS Pub 970 (https://www.irs.gov/pub/irs-pdf/p970.pdf), pg. 54 where it says: === Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Exceptions. The 10% additional tax doesn't apply to the following distributions: . . 3. Included in income because the designated beneficiary received: a. A tax-free scholarship or fellowship grant (see Tax-Free Scholarships and Fellowship Grants in chapter 1); . . Exception (3) applies only to the extent the distribution isn't more than the scholarship, allowance, or payment. === I received a full scholarship for tuition and room/board. The tuition portion was $21,549. I took a $15,900 Coverdell distribution. I don't think what I took it out for matters as I have to pay taxes on it, I get that. My distribution isn't more than the scholarship, therefore should I not have to pay the 10% penalty on top of taxes as per what Pub 970 says? thanks!
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