Q. Considering the scholarship exception, am I allowed to withdraw the amount equal to what is shown from my 529 plan without the 10% penalty?
A. Simple answer: yes. Tax free employer assistance also counts for the scholarship exception.
Q. But I will have taxes on this amount correct?
A. Simple answer yes
Q. I also have tuition assistance from my employer, which covers a portion of the tuition up to the maximum $5,250 tax free amount. My total tuition exceeds that amount, so I am assuming the additional out of pocket I have to pay for tuition is additionally tax free?
A. Simple answer: yes. But it depends on what you mean by "Tax free". Out of pocket $ are eligible for the tuition credit or tax free 529 distributions. Tuition claimed for a tuition credit also counts as a penalty exception for the 529 distribution.
But your situation is a little unclear. Basically, you cannot "double dip" on tax benefits. The same tuition cannot be covered by scholarship, tax free employer assistance and 529 distributions and claimed for a tuition credit.
Provide the following info for more specific help:
- Box 1 of the 1098-T
- box 5 of the 1098-T
- Any other scholarships not shown in box 5
- Does box 5 include any of the 529 plan payments (it should not)
- Does box 5 include any of the employer assistance (it should not, but sometime is)
- Is any of the Scholarship restricted; i.e. it must be used for tuition
- Box 1 of the 1099-Q (529 plan distribution)
- Box 2 of the 1099-Q
- Are you a half time or more student
- Room & board paid. If student lives off campus, what is school's R&B charge. 529 distributions can pay for R&B [if half time or more], but scholarships cannot
- Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers
- Are you trying to claim the tuition credit (are you eligible)?
- Is the student an undergrad or grad student?
- Did you get the full $5250 from your employer, if not how much did you get
- Did you get employer assistance above $5250. Was the excess included in your W-2 (it should have been)
