529 Distribution

Forum|Forum|2 years ago
March 16, 2024
2 replies
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In 2023 my daughter had a distribution of the 529 plan. This was used solely for her housing near the university.

We claim her as a dependent and put the 1098T on our return. The 529 distribution is in her name. When I put this on her return, it is taxing her for what I thought was a tax free event. She files her own return. We do not claim any educational credit on our returns.

How should I be reporting this?

SharonD007

Form 1099-Q doesn't need to be reported on your daughter's tax return as long as the distribution was used for qualifying expenses, which includes books, tuition, mandatory fees, room and board, and any necessary equipment.

Please review the TurboTax articles Information on 529 Plans, Guide to IRS Form 1099-Q: Payments from Qualified Education Programs, and What is IRS Form 1099-Q? for further details.

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Hal_Al

Employee

The interview is complicated. If you know none of it is taxable, just don't enter the 1099-Q. You can just not report 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.

References:

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."
IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.

Room & board (r&b) are qualified expenses, for a 529 distribution, including living off campus. One caveat: you are limited to the lesser of your actual costs or the school's "allowance for cost for attendance".

The student must be half time or more.