529 Withdrawal with Tuition Remission

[BabaBC]

Hi,

I am a new graduate student.  My university covers my tuition via tuition remission, and it does not show up on my 1098-T.  Am I allowed to still withdraw 529 funds without the 10% penalty (but is reported as taxable income) against the remitted tuition?  As an undergraduate with a full scholarship (which was reported on the 1098-T), I could do this; but I am not clear if it is possible to due with tuition remission.  Thanks.

[Hal_Al]

Q.  Am I allowed to still withdraw 529 funds without the 10% penalty?

A. Yes, claim the "scholarship" exception in TurboTax.  Technically, it's a "tax free assistance" exception. 

After entering the 1098-T, you will be asked if you had any scholarships not reported on the 1098-T.  Enter the tuition remission amount. 

If you have any problem getting TT to do that, reply back for a short cut.  It should generate form 5329 with $0 on lines 7 & 8, to claim the exception (you'll see a worksheet in TT, that is nor sent to the IRS)

[BabaBC]

@Hal_Al:  Thanks for the reply.  One of my issues is that the 1098-T does not show the tuition costs.  When I add the additional scholarship money, TT is counting this as income and taxing at ordinary income rates.  Where would I add the tuition costs which can then offset the "additional" scholarship?  Thanks.

[MarilynG1]

 In the Education section, EDIT yourself as the Student, then EDIT your School.

Under the 1098-T entry for Box 1, Tuition, check the box that says 'What if this is not the amount paid to the school'.

This opens a blank entry space where you can put a Tuition Amount.  Save documentation for how you arrived at that number.

[Hal_Al]

@BabaBC  It's no clear what's going on. Your original post didn't mention any "additional scholarship".  Or are you now calling the tuition remission additional scholarship.  Any scholarship in box 5, over and above the tuition remission, would be taxable unless you had additional expenses to enter, e.g. books and a computer.

If the school is putting the tuition remission in box 5, but leaving box 1 blank, that would be highly unusual.

[BabaBC]

@Hal_Al:  Sorry for not being clear.  The 1098-T from the school shows neither the tuition costs nor remission.  It only shows about $500 in lab fees.  What I think needs to happen is I need to show 1) I was charged $12000 (as example) in tuition, and 2) I received $12000 in remission.   In the TT dialog, it asks "did you receive any scholarships not on the 1098-T.  I was thinking that this would be the place to add the $12000 I got via remission.  If there is a better place (e.g. Box 5), I am open to that as well.  Thanks for your help and understanding.

[Hal_Al]

OK, I'm back on track. Our mission is to get the 10% penalty waived and document it on form 5329.  The simple thing to do, is enter $12,000 in box 1 and $12,000 in box 5 at the 1098-T screen.  In fact, enter 12,500 (500 for the fees) in box 1 and reduce the tax on the 1099-Q a little.  If you have any other expenses (books), add them to box 1 too. 

Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.  The 1098-T you enter is not sent to the IRS. 

[Hal_Al]

Room and board are also qualified expenses for a 529 plan distribution, even if you live at home. You must be a half time or more student.  So, you should be able to reduce the amount of the distribution that is taxed. 

To get the screen to enter Room & Board, answer yes when asked if you have book expenses.  You must have entered the 1099-Q, earlier, to get the R&B screen.

[BabaBC]

Thanks for all the help.  By adding the tuition/remission to box 1 and 5 respectively it fixed the problem!  Really appreciate all the info/advice.