I put in my 1099Q form since I'm the beneficiary on the form for my daughter's plan. When is turbo tax taxing the money we took out since it was for educational expenses?

Forum|Forum|6 years ago
February 1, 2020
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TurboTax Deluxe Online

MarilynG

Level 15

Your 1099-Q is not taxable if the entire distribution was used for Qualified Education Expenses. If this is the case, you don't need t enter it in your return; just keep for your records.

Normally the parent is the Account Holder and the Student is the Beneficiary.

Click the link for detailed info about the 1099-Q.

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lahm12Author

Level 2

I am the Account holder. Does that still matter?

MarilynG

Level 15

No, if you are the Account Holder you can report it on your return (if you need to).

If there are taxable earnings, the Beneficiary can report it on their return (if they are required to file a return).

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Hal_Al

Level 15

I don't think the origanl question has been adequately addressed. Why is turbo tax taxing the money we took out since it was for educational expenses?

The one option we did offer: just don't enter the 1099-Q, if you have sufficient expenses. The TurboTax interview is complex. That's because you actually may be better paying some tax on the distribution, and instead using some of the expenses toclaim a tuition credit. TurboTax assumes you want to do this and that's why it's showing some of it taxable. So it reduces the amount used for the earnings exclusion, on the 1099-Q, for the amount used for the credit. You are not allowed to double dip.

Example:
$10,000 in educational expenses(including room & board)

-$3000 paid by tax free scholarship

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)