HOW DO I ENTER A 529 DISTRIUTION THAT WAS USED FOR A STUDENT LOAN PAYMENT?

If your distribution from your 529 plan was less than or equal to the $10,000 lifetime limit available tax-free for student loan payments, you are not required to enter this information on your tax return.  The IRS only requires that information on a Form 1099-Q be entered on the tax return when there is a taxable distribution. 

Save your 1099-Q and student loan payment information with your tax records for at least three years in case of any inquiry from the IRS. 

 

For more information about 529 plan distributions and how they affect your taxes please see THIS article.

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including student loan payments, up to $10,000,  to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. 

References:

1. 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." 
2. IRS Pub 970 states: “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”.

Otherwise, the student loan payment question does come up in the 1099-Q interview.

In TurboTax (TT), enter at:

Federal Taxes Tab (Personal for H&B version)

Deductions & Credits

-Scroll down to

--Education

  --ESA and 529 Qualified Tuition Programs (1099-Q)

Ok, what if your distribution was over $10,000?  All of it was used to pay a student loan.  thanks 

If your distribution was in excess of $10,000 for student loan repayment, visit the Education section under Deductions and Credits and walk through the questions.  TurboTax will ask you if you made payments on qualified education loans, answer yes here and follow the remaining prompts. 

 

 

Thanks!  Would the amount over $10000 be reported on a 1099Q or is it answered in the prompts?  

Thanks again, I'm at work and unable to go through the steps at the moment.  

Q.  Would the amount over $10000 be reported on a 1099Q?  

A. The entire amount of the distribution will be in box 1 of the 1099-Q, not just the portion over $10,000.  

 

As an alternative to visiting the Education section under Deductions and Credits, you are allowed to enter the loan payment directly in the 1099-Q section.  Press Done at the 1099-Q summary screen, to get to that entry screen.