Input of 529 tax-free withdrawals to pay student loans?

Forum|Forum|2 years ago
April 6, 2024
2 replies
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Hi there.

I have both qualified education expenses and qualified loan repayments that I made from a 529 in 2023.

I can't figure out how to get Turbo tax to not make me pay tax on the qualified loan repayment. No matter what I try, the loan amount will not show up on page 3, line 2a of the 1099-Q worksheet and so Turbo tax is making me pay unnecessary tax.

I'm desperate for help. Thank you!

Hal_Al

Employee

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, or loan payments to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses and/or loan payments, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!

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”.

That said, the 1099-Q interview has a screen titled "Principal or interest payments on qualified education loans". Answer yes and enter the amount of loan P&I paid.

jill_RAD67Author

Thank you for replying.

Yes, I had already entered the amount of my student loan payoff. I went through the interview multiple times. I did see they ask that question in both the 1099-Q and the 1098-T sections. After all of that and trying a few other things - I could NOT get the loan payment to show up on page 3, line 2a.

I did just end up removing all the 1099-Q's.

It just seems like Turbotax should be able to make this work?! I'd love to figure out how it can work within the software so all the information can be entered and tracked within that.

Moving on for this year.

Thank you very much for responding to my question.

mmatrull

Employee

I had the same issue as you. There is no way to enter the re-paid loan. Turbotax however is not even reducing the taxes for the other fully qualified expenses I have so I'm trying to figure that out first. I may just skip entering the 1098-Q also. Can't believe I pay for TurboTax Premier and it can't even handle something simple like this.

bl275

This isn't covered in the TurboTax interview. I entered mine in TurboTax Premier 2024 by using View > Forms > Form 1099-Q > under the section Qualified Tuition Program (QTP) > Line 2a Qualified Loan Payments, right-click > override > enter you loan payments up to $10,000 lifetime.

AmyC

Employee

If you have taxable income, the Q exceeds the loan repayment, you can enter the 1099-Q in Premier under Deductions and Credits. If the 1099-Q is not taxable, it should not be entered.

@bl275