My son is graduating May of this year. There are unused money in his 529 account because he received tax-free scholarship all four years. I know I can take distributions to myself and pay tax (use line 6 of form 5239) on earnings for the amount of scholarship he received in senior year. Can I also withdraw before May the amount of money equal or less than the total scholarship he received in the first 3 years, and avoid the 10% penalty?
Here's a longer discussion on that subject (but with the same conclusion: you don't qualify for a penalty exception.
You should have the distributions made to the student. If there's tax, it will be taxed at the student's tax rate.
No, the distributions made in 2021 cannot be applied to prior years.
Here's a longer discussion on that subject (but with the same conclusion: you don't qualify for a penalty exception.
Instead of removing the money and paying tax and penalty, You may want to consider a beneficiary change.
Hi @Hal_Al , Thanks for the other thread reference. I still have two questions for you:
1. After reading the long post, looks to me, PUB 970 does not offer a very clear position on this topic. If I want to claim prior year scholarship, I can use forms mode to override the penalty, right?
2. Can 529 money be used for graduate school expenses, including Cambridge in UK? I think it can, but want to double check.
Q. I can use forms mode to override the penalty, right?
A. Yes. Forms mode is not available to online users. Override prevents e-filing in the desktop versions.
Q. Can 529 money be used for foreign graduate school expenses,
A. Yes if the school is an "eligible institution" on the DOE list.
Enter your school at the link below, to see if it's on the dept. of education list.
https://fafsa.ed.gov/FAFSA/app/schoolSearch?locale=en_EN (choose foreign country for state)
Reference: https://www.savingforcollege.com/article/can-you-use-a-529-plan-to-pay-for-study-abroad