529 Disbursement

Forum|Forum|4 years ago
January 22, 2022
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I paid my daughter's off campus apartment rental in 2021 by withdrawing the exact amount of the rent each month from her 529 plan. On the 1099-Q, I was listed as the recipient, though my daughter was the ultimate recipient. Based on this, Turbo Tax shows I should pay taxes on the earnings, since I was technically the recipient. Is this correct? I didn't think it mattered who received the money as long as it was used for qualified educational expenses. Thus, I thought there would be no taxes incurred. Thank you.

Hal_Al

Employee

Q. On the 1099-Q, I was listed as the recipient. Based on this, Turbo Tax shows I should pay taxes on the earnings, since I was technically the recipient. Is this correct?

A. Yes, if any of it was taxable. But, as you surmised, it doesn't mattered who received the money as long as it was used for qualified educational expenses. And room (including off campus rent) and board are qualified expenses.

But, there is a limit on how much rent qualifies as a qualified expense for 529 distributions. You may count the actual rent paid or the school's "cost of attendance" allowance* for room, whichever is less. So, some of the earnings may be taxable. The same rule applies for "board". You may count what you actually paid for food, or the school's allowance for board, whichever is less.

*Cost of attendance is technically how much the school allows for room (and/or board) when calculating scholarship. For practical purposes, it's usually the same amount that the school charges on campus residents for "room" (and/or board).