529 withdraw

[jrh7]

Hello, we withdrew funds out of our 529 account to pay for my son's tuition and room & board for college last year.  The 1099-Q lists the amount at approximately $15,500. The college provided us with a 1098-T for tuition paid at approximately $11,800.  Actual college expenses for 2024 that we paid for tuition and room & board were over $22,000. When I am entering the 1099-Q and 1098-T in Turbo Tax, it is treating the difference between the $15,500 and $11,800 as taxable income. 529 withdraws for tuition and room & board are supposed to be tax free as I understand it. How do I handle this in Turbo Tax so its not treated as taxable income? Thanks for your help!

[RobertB4444 · Accepted solution]

If the withdrawals from the 529 plan were all used for qualified educational expenses (which DOES include room and board) then you don't need to enter the 1099-Q into TurboTax at all.  Just enter the 1098-T and delete the 1099-Q.

@jrh7 

[Hal_Al]

Based on the numbers you provided, you are still eligible for the tuition credit, even though most of your expenses were paid by the 529 distribution.  It only takes $4000 of net tuition to claim the American Opportunity Credit (AOC or AOTC).  $22,000 - 15,500 = $6500 (more than $4000).  This assumes there was no scholarship $ in box 5 of the 1098-T

You can still omit the 1099-Q. Enter the 1098-T, as is. TT will only use $4000 for the credit, not the full $11,800.