529 distribution

[dbrooks4]

I paid for room and board for my non-dependent child who is attending college and I got reimbursed from their 529 plan. The 1099-Q is in my name and it showed the reimbursement that I received (and box 6 showed that the recipient is not the designated beneficiary). I entered the amount from the 1099-Q into Turbo Tax for my tax return and I indicated that the beneficiary was "someone else".  Then I entered the same amount as room and board expenses in my child's name. However, turbo tax is still calculating income tax on some of the reimbursement. How do I fix this as this should have no impact on my taxes owed?

[DavidD66]

If the distribution was used to pay (or reimburse) room and board expenses (they are qualified expenses for 529 plan distributions) and the distribution was taken in the same year the expenses were paid, then it is not taxable and you don't need to enter the Form 1099-Q.  You can just delete the Form 1099-Q from the program.  

[Hal_Al]

There's currently a glitch in the 1099-Q part of the program that won't be fix until Feb. 27.  But, it shouldn't affect 529 plan owners, like you, who have non-dependent beneficiaries.  You've most likely answered something wrong in the interview.

But, as others have said, the 1099-Q is  only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you probably can. 

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 (you don’t need it). You would still have to do the math to see if there were enough expenses left over for the student to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships.

References:

1. 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." 
2. 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”.
3. "IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form."