Question

How do I avoid my 20 year old daughter paying tax on 529 disbursment when we apparently paid (dec) and were reimbursed (jan) across tax years ?

Forum|Forum|6 years ago
April 30, 2020
1 reply
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I entered the 1099-Q on my daughters' tax form and also the tuition reported by her university. it seems we paid for Spring 2019 semester in Dec 2018 and were reimbursed from 529 in Jan 2019 so it looks like she made "income" from the 529 that didn't go to education so its taxable. In truth, none of money even went to her: we paid the tuition and paid ourselves back. I'm not sure how we didn't have the same issue last year except that I think we may have immediately funded her siblings account with the reimbursement that time? Anyway, is there some way to account for this?

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Hal_Al

Employee

The simple thing is don't enter the 1099-Q, at all. If your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

Technically your distribution must match the year of your actual payments. You problem is common enough, but the IRS position on enforcement is not known. In the future, you should make the effort to be sure you match distributions to payments in the same year