Parents receiving 529 Distribution on 1099Q but child paid for tuition

[Tlynncpa]

Parents received 529 Distribution on 1099Q, Child out of the country paid tuition, room and board, books, food and incidentals.  

1.  Is this taxable to anyone if the Graduate Schools is not a qualified school according to the 529 research? If so how to handle?

2. Can the Child (25) receive LLC as is not claimed on anyone's return as a dependent and is filing a US return with W-2 Wages who is filing single for 2024.

3.  Tuition, room and board, food and incidentals are lower than distribution from 529.

4. Tuition is for 2024 and 2025 1/2 and 1/2. 

Thanks, 

[Tlynncpa]

Oh and now 1098 was provided from Grad School.

[AmyC]

First post - not a qualified school

1, Yes. IRS Pub 970 and Can You Use a 529 Plan To Pay for Study Abroad? agree that ineligible expenses must be included in income. Whoever received the income from the 529, includes it on their tax return. 

2. No. LLC is only for qualified education expenses which means to an eligible institution. See  What You Need to Know about AOTC and LLC

3. & 4. All taxable income

Second post - received a 1098-T, sounds like an Eligible Educational Institution - Internal Revenue Service. Verify if it is or is not.

If it is:

1. Only portion beyond 529 qualified Room and Board  and Qualified Education Expenses - Internal Revenue Service would be taxable.

2. Yes, LLC available.

3. Some portion would be taxable.

4. Distribution in 2024 to pay for tuition due the first 3 months of 2025 is not taxable.

[Tlynncpa]

Really appreciate the response.  Just to clarify that there is no 1098-T.  I typed now and the "w" was a typo.

[Tlynncpa]

If the income is claimed by the student because the money went to the parents and then to the student, then where on the Students Tax return does this go?

[Hal_Al]

Q. Does the student claim the income because the money went to the parents and then to the student? 

A. No. If the parent's name and SS# are on the 1099-Q,then the parents claim the income on their return.  They are considered the "recipient" of the funds. You enter it in the 1098-Q section of TT.

But, I don't see where we've answered the question:

Q. Is the school an eligible institution for the LLC and the 529 distribution?

A. Just because you didn't get a 1098-T isn't conclusive. 

Enter your school at the link below, to see if it's on the dept. of education list.

https://www.savingforcollege.com/eligible-institutions

[Tlynncpa]

To clarify a little more.  The money went directly to the students account (bank account number is on the distribution as the students) but the 1099Q was sent to the parents, with the parents SS # and address.  Also Box 6 is checked as the recipient is not the designated beneficiary which is incorrect as the Student is the beneficiary.  The Student paid Tuition, Room & Board and Books for an unqualified school. 

1. Who claims the income and in what amount

2. Who claims the expenses and in what amount as some tuition was for 2025

3. Is Student Eligible for LLC

Thanks,

[Hal_Al]

"The money went directly to the students account (bank account number is on the distribution as the students)".

That sounds like the plan administrator is treating that bank account as yours, not the student's.  The 1099-Q shows you as the recipient. Box 6 is correct. You have three choices: 1. Enter it on your return (recommended), 2. request a corrected 1099-Q from the plan administrator or 3. just report it on the student's return and hope you can explain it if question by the IRS (unlikely). 

You then say "The Student paid Tuition, Room & Board and Books for an unqualified school (not an "eligible institution" 

Q.  Who claims the income and in what amount?

A. Who depends on which of the three choices you take.  The amount is all of the box 2 amount on the 1099-Q.  It's taxable income and subject to the 10% non qualified distribution penalty, because it was not used at an eligible institution. 

Q. Who claims the expenses?

A. Nobody. It was not paid to an eligible institution.

Q.  Is Student Eligible for LLC

A. No. It was not  an eligible institution.