I received a 1099-Q from Fidelity for distributions I received during 2024. I am the account owner - not the beneficiary. The distributions were reimbursement for qualified educational expenses I paid on behalf of the beneficiary. The qualified educational expenses were in excess of the distribution amount. TurboTax is treating the earnings portion of the distribution as taxable income, even through the entire distribution amount was for qualified educational expenses. How do I fix this?
On form 1099-Q, instructions to the recipient read: "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."
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.
Just keep the form 1099-Q and your calculations in your tax records.
Thanks! I am concerned that the IRS receives a copy of the 1099-Q and will flag my return if I do not report the information from the 1099. The distribution only covered a portion of my beneficiary's expenses so I am not concerned about reporting this information. I just do not want TurboTax to incorrectly treat it as taxable income.
Your return will not be flagged. The instructions to the recipient on form 1099-Q are clear on this point.
When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax (TT)will enter nothing about the 1099-Q on the actual tax. So, entering it in TT can not help you stave off an IRS inquiry.
We have noticed, here in this forum, that the number of 1099-Q notices, from the IRS has dropped off significantly in recent years. I can't recall the last time there was a post about an IRS 1099-Q inquiry. I personally got one, back in 2015, and it was a simple thing to explain it away.