I took a $21,000 withdrawal from a 529 + my child received $2,000 in scholarships. I entered $23,000 in qualified expenses, but TurboTax still increased the tax amount by over $900. Shouldn't this zero out? I actually had a similar issue last year, but by deleting & re-entering multiple times, somehow TurboTax eventually registered it as zero'ed out.
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Believe I have my answer from a wonderfully informative post -
Answer - per IRS Publication 970, if withdrawal = expenses, then it is tax free & 1098Q & 1098T do not need to even be entered in TurboTax.
From 970:
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.
Yes, generally that is the simple solution: don't enter the 1099-Q if you know none of it is taxable.
But, you may be able to claim a generous tax credit (up to $2500) by paying a little tax on the distribution and/ or having the student pay a little tax on their scholarship.
Parents are generally eligible for the credit if their income is less than $90K ($180K married filing jointly).
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