where in turbotax do i enter prior year college scholarships to avoid the 10% penalty on pulling money out of a 529

[CesarJ]

In TurboTax, you don't directly enter prior year college scholarships to avoid the 10% penalty on 529 plan withdrawals. Instead, you report your 529 plan distributions and then adjust for qualified education expenses reduced by any tax-free scholarships received that year. This adjustment affects the calculation of taxable earnings on nonqualified withdrawals, potentially reducing the 10% penalty.

To handle this in TurboTax:
1. Enter your 529 plan distributions exactly as reported on Form 1099-Q.
2. When asked about qualified education expenses, enter the expenses paid in the current tax year.
3. Enter any tax-free scholarships or grants received for the year, which reduce your qualified education expenses.

This will calculate the adjusted qualified education expenses and determine if part of your 529 distribution is subject to tax and penalty. Prior year scholarships are typically considered through adjustments if reported on Form 1098-T or corrected scholarships, but they aren't entered separately in TurboTax. The key is accurately entering your qualified expenses and scholarships for the withdrawal year to reduce penalties.

[jalustig]

Thank you for the quick answer.  When entering in my 1098T info, the 1098T only lists the scholarships from this year. But if I took money out this year due to scholarships over the past 3 years, do I just increase the number to include the previous years' scholarships?  Otherwise I will only show a smaller scholarship amount that will not match up to what I withdrew from the 529.  Thank you again!

[Hal_Al · Accepted solution]

As others have said, most tax experts, including me, believe that you are not allowed to count past year scholarships for the penalty  exception.  But there is some disagreement on that.  Although,  most of those on the other side say it must still be done before graduation.  See references below for past detailed discussion.

But your question was not can you but how to.  Here's an old post that may or may not help.

https://ttlc.intuit.com/community/college-education/discussion/final-withdrawal-from-529-account/00/... how to enter in desktop

Past discussion on "can you"

https://ttlc.intuit.com/community/college-education/discussion/529-plan-withdrawals-and-prior-year-s....

https://ttlc.intuit.com/community/college-education/discussion/re-529-plan-distribution-with-scholar... 

https://www.forbes.com/sites/josephhurley/2016/02/04/dont-make-these-mistakes-when-reporting-529-pla...  

 https://www.investopedia.com/news/penaltyfree-way-get-529-money-back/

https://ttlc.intuit.com/community/college-education/discussion/re-529-plan-scholarship-refunded-late...