Martha participated in a qualified tuition program for the benefit of her son. She invested $6,000 in the fund. Four years later her son withdrew $8,000, the entire balance in the program, to pay his college tuition.

Question

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Martha is not required to include the $2,000 ($8,000 - $6,000) in her gross income when the funds are used to pay the tuition because the funds were used to pay for qualified education expenses, which are excluded from income under Internal Revenue Code section 529. Martha's son also does not have to include the $2,000 in his gross income since it was used for qualified education expenses.

Martha Participated in a Qualified Tuition Program for the Benefit