WD from 2 kids 529. One WD is higher to cover more than 1 kid. Why is TT put the kid’s higher 529 WD as other income instead of apply the extra to the other kid?

Forum|Forum|3 years ago
March 23, 2023
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How to enter this in TT to avoid the problem?

TurboTax Online

Best answer by Hal_Al

Q. Why is TT put the kid’s higher 529 WD as other income instead of apply the extra to the other kid?

A. Because that's not allowed.

The part you want to apply to the other kid, is an excess (non qualified) distribution. The earnings portion of the excess is technically taxable.

In the future, to do what you want to do, you must first transfer (rollover) money from one kid's account to the other. You are limited to one rollover per year (within a 12 month window).

JohnB5677

Let me make sure I understand.

You have 2 children.
I'm guessing that you would have (2) 529 college savings plans.
I think you are suggesting that one withdrawal was larger, but wasn't used by that beneficiary child, so you want to apply it to the other child.

The 529 plan has one specific beneficiary assigned to the plan.

All of the proceeds from that plan are attributed to that beneficiary.
You can switch beneficiaries to another family member or relative as defined by the IRS, but only the existing beneficiary can use the funds for education.

"The person who opens the 529 plan account is called the account holder or the saver. The person the account is opened for is called the beneficiary or the student. The account holder and the beneficiary can be the same person."

10 Questions to Consider Before Opening a 529 Account

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Hal_AlAnswer

Employee

Q. Why is TT put the kid’s higher 529 WD as other income instead of apply the extra to the other kid?

A. Because that's not allowed.

The part you want to apply to the other kid, is an excess (non qualified) distribution. The earnings portion of the excess is technically taxable.

In the future, to do what you want to do, you must first transfer (rollover) money from one kid's account to the other. You are limited to one rollover per year (within a 12 month window).

michash2998Author

That’s a bummer. the websites I read said I can use 529 acct from one kid to pay for the other kid but didn’t mention I have to transfer between accounts first. Is that anything I can do as the money are used 100% for qualified expenses? Thanks