529 provider distributed funds on 12/30 for spring semester resulting in a mismatch between 1099Q and 1098T. Program is saying a portion of the distribution is taxable.

[harry-shamlian]

Does anyone know how to deal with this within the program?

[DavidD66]

529 plan distributions must be made during the same tax year that the qualified expenses are incurred.  Unlike the American Opportunity Tax Credit (AOTC), taxpayers cannot anticipate qualified 529 plan expenses that will be made at the beginning of the next tax year. The Internal Revenue Code of 1986 has an explicit exception for the AOTC at 26 USC 25A(g)(4) that allows one to make a prepayment for expenses for an academic period that begins during the first three months of the next tax year. There is no similar statutory language for 529 plans.

Unless you have education expenses you can apply towards the 2020 distribution, a portion of the distribution may be taxable and subject to penalty.  

[Hal_Al]

Just don't enter the 1099-Q.

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." 

Technically, a 529 distribution must occur in the same year the expenses were paid.  This problem, of mismatched year end distributions, is fairly common.  Treat it as received and paid in the same year.  And hope you can explain it away if you receive an IRS notice.   You certainly meet  the intent of the 529 rules, if not the strict letter.  We haven't seen any reports, in this forum, of how that specific problem  has actually worked out.

Do a better job on timing next year

Several users have reported receiving a CP2000 letter, from the IRS,  on unreported 529 distributions. They replied that their child was in college and the distributions were used for qualified expenses, which they listed, but they did not provide receipts. Others have reported just sending copies of the school's billing statements. They  later received a notices saying they were in the clear. I've noticed a significant drop in users, here,  reporting IRS notices about 1099-Qs, in the last two years.