$10,000 is not, most likely, your basis. After you make your $20,000 withdrawal, the 1099-Q will show $20,000 in box 1 and your basis, for the distribution, in box 3. The earnings will be in box 2. The plan administrator will determine the basis and earnings. You (or him) are not taxed on the basis, you're taxed on the earnings.
Using an example, if you originally put $20,000 in the account and the account in now worth $30,000; 67% is basis and 33% earnings. When you take a $20,000 distribution, box 1 will show $20,000, box 2 (earnings) will show $6667 and box 3 (basis) will show $13,333. Since you used half the distribution for tuition, only half the earnings ($3333) will be taxable.
Q. How do I enter this into Turbo Tax (TT)? Son is listed at the recipient.
A. You enter the 1099-Q, on his return. Later, at the education interview, you enter the qualified educational expenses (QEE) paid.
Q. This is going to cause him to have income, right, not me?
A. Yes, since he is the recipient*. The 1099Q will show a $20,000 distribution and earnings in box 2. TT will calculate the taxable portion of the earnings and out it on line 8 of Schedule 1.
Q. Can this excess distribution trigger the kiddie tax if he has other income?
A. Yes. The kiddie tax is trigger even if he does not have other income. The taxable portion of the earnings is unearned income and triggers the kiddie tax at $2200.
Q. The TurboTax (TT) interview questions for this situation are insufficient to figure out what you need to do. For example they focus on 1099Ts and high schools don't send 1099Ts. It doesn't mention high school anywhere in the interview.
A. After telling TT that you don't have a 1098-T, it will give you a screen to enter tuition not on a 1098-T. The interview will ask what level of school the student attended. HS is a choice.
Q. Maybe the solution is to send one $10K check to the school, and a second one to us? As a way to generate two different 1099Qs?
A. Yes, you can ask the administrator to do that, but it is not necessary and will not change the tax due
Be advised that the taxable portion of the earnings will also be subject to the 10% penalty on a non qualified distribution.
*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.
