529 withdrawal penalty for tuitiion expenses

[jayhawkswenson1]

I'm doing my taxes and entered how much money I took out of 529 plans to exactly cover my college Freshman's tuition, fees and room and board.  But turbo tax is not allowing the tuition to show up as a qualified expense because my income is too high.  As a result my taxes have increased.  This has to be a mistake.  Please explain what I need to do to not get penalized for using a 529 plan to pay for tuition.

[jayhawkswenson1]

I figured it out.  had to go back and edit my son's "profile" and enter fake tuition amount for 1098T.  I haven't received that document from UCLA yet so will enter official numbers once it's received.  Now tuition is showing up as a reasonable and non-zero number.  Honestly, TurboTax needs to make the tuition editable at where it's shown rather than the back door requirement by the student's name.  But happy to have figured this out.

[ridingsv]

How did you change your tuition amount? It wont allow me to do this

[JosephF8]

Here's how to edit the 1098-T in TurboTax:

• From Deductions & Credits
• Expenses and Scholarships (form 1098-T) hit Update
• From the page that says Now Let's Gather The Additional Education Expenses
• Hit Continue. You will need to continue through several screens until you get to the screen that says Your Education Expenses Summary click Edit
• At Here's Your Education Summary you can Edit, Delete or Add New School

Please note that in the online program Here's Your Education Summary may come right you hit Update above

[jayhawkswenson1]

Kind of a convoluted method for changing something that should be simple, don’t you think?  Come on TurboTax!

[KrisD15]

Not really.

If the distributions are made properly, the 1099-Q will be issued in the student's name.

The 1098-T is also issued to the student. 

The Taxpayer claiming the student enters the 1099-Q and 1098-T. 

Simple.

TurboTax does the math and tells you if you get a credit and/or if the student needs to claim income. 

The problems start when distributions are made by the owner, rather than the beneficiary. 

[jayhawkswenson1]

If you and/or Turbo Tax’s goal is for us to start sealing professional tax help to do “simple” things them mission is almost accomplished.  But go ahead and belittle legit complaints and constructive criticisms.  I’m very close to punting on this software.

[NCperson]

be very careful with the 1098-T and the 1099-Q; @KrisD15 is really simplifying things

if the Student is a dependent of the parents AND BOX 1 exceeds Box 5, the 1098-T goes on the parents tax return; otherwise it goes on the students tax return.

The 1099-Q goes on the return of whomever's social security number is on the form.  if the 529 administrator sent the money DIRECTLY to the college or to the student, the student's SS# will be on the form and he / she needs to put that on his/ her tax return form.  If the 529 administrator sent the money to the parents, the parent's SS# will be on the form.  

@KrisD15 : this statement in bold is not correct: with respect to the Taxpayer if the 529 funds went to the college / student directly; the 1099-Q would go on the student's tax return (if they are even required to file given their normally low income levels)   The Taxpayer claiming the student enters the 1099-Q and 1098-T.  

[NCperson]

@jayhawkswenson1- it's not TT's fault this is so complicated; blame Congress and the IRS...it is complicated and TT does a great job to 'dummy it down' 

what parents do not understand is that by having the 529 distribution go to them so they can pass on the college complicates things - that is driven by the IRS, not TT.  It simplifies things if the 529 administrator is directed to send the money directly to the college, 

this is what @KrisD15 means when stating; "The problems start when distributions are made to the owner, rather than to the beneficiary. "

[MissLauraQ72]

Turbo Tax had us pay the 10% penalty on my son's tuition - How do we get that money back?

[MissLauraQ72]

We have all distributions sent directly from our 529plan, and still got the penalty

[AmyC]

@MissLauraQ72

If all of your distributions from the plan went directly to the college, you do not need to enter the 529. 

See page 52 for qualified distributions at IRS Publication 970, Tax Benefits for Education.

See more information on 529 at my example, here.