529 Plan Scholarship Exception reporting

Forum|Forum|6 years ago
November 6, 2019
1 reply
0 views

I own a 529 plan for my child (beneficiary)and have never withdrawn scholarship money - it is a lottery funded scholarship and does not meet or exceed the amount of qualified expenses. The scholarship is reported from the school on a 1098T. The 529 will end up over funded, so I would like to withdraw as much as possible without the penalty. If I withdraw the scholarship money received for 2019,I have a question about reporting. We have always calculated the college costs/529 income on the parent return (always zero taxable income as our withdrawals equal our qualified expenses). If we withdraw the scholarship money, would that then need to be reported on my child’s return and would the 529 withdrawal for this need to be in her name? All prior amounts received from the 529 have been in the parents name. She will only have Schedule C income this year. If anything would need to be reported on her return, I was confused how this is handled when we would be splitting the 1098T reporting - the scholarship reporting showing on her return and the tuition expenses netting with the other 529 withdrawals for zero taxable income on the parent return. OR can we have the scholarship withdrawal also come to the parents and be reported on the parent return and reflected as the scholarship exception? I don’t want to cause any problems/additional expense for my daughter from a tax perspective.

Thank you.

Hal_Al

Employee

Q.If we withdraw the scholarship money, would that then need to be reported on my child’s return and would the 529 withdrawal for this need to be in her name?

A. You have a choice. When, you want to withdraw money, you tell the plan administrator where the money goes. For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return. The recipient's name & SS# will be on the 1099-Q.

EarlybirdAuthor

Thank you. And this is still OK to report on the parent/recipient return when the document showing the scholarship money (1098T from the college) will be in the name of the child/student?

Hal_Al

Employee

Yes. This is a common situation, not only in the case of a 529 plan, but when the parent wants to claim a tuition credit for their student-dependent's expenses. The 1098-T is only an informational document. The info can go on either the student or parent's return and sometimes both.