@bill_321 wrote:
Yes, I agree. It's just that the 1099-Q doesn't break it down to that detail (only shows 25k withdrawal, 10k earnings, and 15k contributions). TT asks for numbers in those boxes. There was no place (at least when I did my "test run" last March) to specify if some component wasn't subject to penalty.
So, the tuition part is "excess", but not subject to penalty (b/c of the grant/scholarship exemption).
Thanks for your help. Will revisit in the spring.
Publication 970 says "This exception only applies to the extent the distribution isn't more than the scholarship..." If you withdrew $10,000 against $zero of allowable expenses, because there was a $10,000 scholarship, the $10,000 would not be subject to the penalty. But you are discussing withdrawing $25,000 against $15,000 of expenses. The whole distribution is more than the amount of the scholarship. There is nothing in the publication that suggests you can treat the withdrawal as two separate withdrawals of $10,000 (taxable but exempt from the 10% penalty) and $15,000 (allowable).
Pending correction by an expert, I think the excess withdrawal is still subject to the penalty.
