The tuition payments were included in the 2019 1098-T, but the 529 distribution was reported on my 2020 1099-Q. Both the payments and the distribution were intended for the spring term of 2020.
The kids took most of 2020 off due to covid, so there wasn't much tuition due that year and what was due was covered by fin aid. I did not receive a 1098-T for 2020 because box 5 (fin aid) was greater than box 1 (payments).
SO.....its looking like the 529 distribution is now completely taxable as income for 2020. Am I out of luck here? is there anything I can do?
Thanks in advance for any advice
Unfortunately, there's no stratagem you can use at this late date to shift or undo things. IRS publication 970
notes that there was a 2020 COVID relief provision that would have allowed you to rollover the distribution to another (or presumably the same) qualified tuition program if you had done it by July 15, 2020.
On the plus side, not all of the QTP distribution is taxable, only the portion of the distribution that was earnings on the original investment. Pub 970 shows how to calculate this amount.
Also, you should have received a 1098-T regardless of whether the financial aid exceeded tuition expenses. Page 28 of Pub 970 shows that in some settings, some of the financial aid can be shuttled into the student beneficiary's income, freeing up some or all of the qualified tuition expenses to be applied to educational credits and/or reducing the QTP tax bill.