My child attended school in 2019. Tuition was paid with student loans. In 2020 I paid the loans with a 529 withdrawal. There's no 1098-T. How do I enter this?

[mark168]

Child is not a dependent in 2020. I was the recipient of the 529 payment. The amount was $13,493.43. Do I owe taxes/penalties on the $3,493.43 about the $10K loan allowance? How do I enter all this so TurboTax will compute it correctly?

[Hal_Al]

Q. Do I owe taxes/penalties on the $3,493.43 above the $10K loan allowance?

A. Yes,  unless he/she was still a student in 2020.  You cannot count the 2019 tuition because it was not in the same year as the withdrawal (distribution). Although a student must be your dependent for a tuition credit, he only needs to be the plan beneficiary for a qualified 2020 distribution.

Q. How do I enter all this so TurboTax will compute it correctly?

A. The 1099-Q interview will ask about loan payments. You do not need to enter anything at the education expenses section. Even if you claim his 2020 tuition for the remaining $3493, there is a place to enter that in the 1099-Q section when the student- beneficiary is not a dependent. 

[mark168]

Thanks, but that does not appear to be the case. I did see the question about paying loans, but that was in the 1098-T dialog. However, I can find no place where Turbo Tax allows you to enter how much was paid for loans.  I don't see how it can calculate taxes correctly without that bit of information. What am I missing???

[Hal_Al]

Delete the 1098-T and that whole education section.  You don't belong there because the student is not your dependent.

 Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click delete next to the student's name. 

Enter the 1099-Q  

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)

You'll be asked who was the student. Since the student is not your dependent, choose "Someone else not listed here".  Do not choose "This distribution was not used to pay any education expenses".

When asked what level of school attended, Choose "none of the above". The next screen will ask if you made loan payments.

[Carl]

If the student was not claimed as your dependent on your 2020 tax return, then you can't claim "any" deductions or credits for them, on your 2020 return.  Hopefully, this will help you understand.

- Qualified education expenses are claimed in the tax year they are actually paid. It does not matter what tax year is paid *for*.

- Scholarships, grants and 529 distributions are claimed as taxable income *INITIALLY* in the tax year they are recieved. It does not matter what tax year that money was "for".

As for the 1099-Q, that gets reported on the tax return of the named beneficiary whose SSN is listed as the beneficiary on that 1099-Q. So if that's you the parent, and you are not claiming the student as your dependent for 2020, that means unfortunately, you have no qualified expenses to offset the taxability of the 529 withdrawal you made in 2020. It also means that in addition to paying taxes on that 529 distribution, you may also pay a penalty, unfortunately.

May I ask why you are not claiming the student as your dependent for 2020? Is it because they are over the age of 23 on Dec 31 of 2020?

[mark168]

Thanks I got it to work finally by getting a Turbo Tax Specialist on the phone. The trick was to check a box on one of the innocuous questions in the 1099-Q entry dialog, I forget which one, and voila, I finally got to a screen that let me enter the amount of the loan paid, principle and interest. Yeah!

[mark168]

That's sort of right. I can't get any deductions for him. (He's not a dependent, because he's a working electrician living in another state, and supporting himself.) BUT I can put $10K of loan payments against the $13K 529 withdrawal, so I don't get taxed/penalized on the entire withdrawal, only ~3K. 

Thank you for your support.