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mwvarner
New Member

Why would 529 earnings be taxed if qualified tuition greater than withdrawal amounts?

My wife and I each contributed to a 529 in 2018 with her as the beneficiary. She is in a full-time degree program with tuition that we paid in 2018 (around $7200) as reported on 1098-T. We took distributions from the 529s later in 2018 of around $2500 from each account (reported on two 1099Qs, both with her as the beneficiary). One of the accounts had earned $17 since it was opened, and that amount is showing as taxable in TurboTax. She had a $500 scholarship, but our net tuition expense in 2018 was still $6700. Why would any earnings on 529 be taxable if used for qualified tuition expenses? I can't figure out why TurboTax won't apply the tuition we paid.

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Hal_Al
Level 15

Why would 529 earnings be taxed if qualified tuition greater than withdrawal amounts?

TurboTax uses parts of you college expenses to claim the Tuition credit. That reduces the amount that can be used to claim the 1099-Q as being totally tax free. 

If your income is too high to claim a tuition credit, see https://ttlc.intuit.com/questions/4451709-why-is-the-529-distribution-from-my-1099-q-showing-up-as-t...

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1 Reply
Hal_Al
Level 15

Why would 529 earnings be taxed if qualified tuition greater than withdrawal amounts?

TurboTax uses parts of you college expenses to claim the Tuition credit. That reduces the amount that can be used to claim the 1099-Q as being totally tax free. 

If your income is too high to claim a tuition credit, see https://ttlc.intuit.com/questions/4451709-why-is-the-529-distribution-from-my-1099-q-showing-up-as-t...

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