incorrect 529 distribution tax refund calculation?

Forum|Forum|3 months ago
March 15, 2026
1 reply
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My son finished final semester of college in 2025 spring. I paid $15K from 529 distributions (this is the only withdrawal) to cover for $15422 tuition. The distribution had a basis of $12344 and earning of $2656. We don't qualify for AOTC or LLC credits due to high income. The tuition alone should cover 529 distribution and make the 529 earning tax free. but my tax refund (both federal and state) went up in turbo tax when I enter room and boarding expenses of $6410K. The refund increases further when I enter $900 of computer expenses. In fact the refund keeps increasing further as I increase computer $$$, and finally stops once I increase computer expense to $3147. My son didn't get any scholarship or any other tax free assistance.
I think just the tuition of $15422 should make full 529 distribution ($15K) tax free, and entering additional $$ for room and board or computer should not change tax amount. Is there a bug in software? We live in GA where there is no special

TurboTax Premier Online

Hal_Al

Level 15

Q. Is there a bug in software?

A. Yes. See below (which is only one of several problems).

Delete the 1099-Q. The 1099-Q is only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you probably can.

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records (you don’t need it).

References:

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
"IRS Publication 970, Tax Benefits for Education states: If the entire 1099-Q went to qualified expenses, room and board, tuition, etc; then, you do not need to enter the form."

One problem, I've seen, and it carries over from last year, is that TT has allocated $10,0000 of expenses to the tuition credit, instead of the more appropriate $4000 or even though the student is not claiming the credit. In the past, TT provided a screen titled “education expenses used for a tax credit”. It was usually prepopulated (often with $10K). You could change it for the amount you want to allocate to the ed credit (probably $4000 in your case). So far, this year, I haven't found that screen, even after the Feb 26-27 updates.

If you don't get that screen, you can check the student information worksheet. You can manually change it there (line 18). Make the change in the first column, on the left. line 17 prior to 2025

For more info, about 529 distributions, see: https://ttlc.intuit.com/community/college-education/discussion/where-do-i-enter-college-room-and-board-expenses-that-were-paid-for-by-a-529-disbursement/00/3782831