Q. In the event part of the distribution was used for educational qualified expenses and part was not, which option should be selected within Turbo Tax?
A. You are correct, use option 1: answer that This distribution was used for qualified educational expenses.
Q. I would like to think that Turbo Tax is applying all of the distributions to your listed education expenses, and if over, it is applying taxes appropriately.
A. Yes, but it can get complicated and it's helpful if you have idea of the outcome. If you are the student or the student is your dependent, your enter the educational expenses, later in the educational expenses section. Be sure to enter the 1099-Q before you enter the expenses.
There are three things you can do with your Qualified educational expenses (QEE):
- Allocate then to scholarships (so that the scholarship remains tax free)
- Use them to claim an education credit
- Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable
TurboTax allocates QEE, in that order, until you tell it otherwise. TurboTax allocates QEE, in that order, but it doesn't do a very good job. See explanation and example above.
If you get stuck, reply back, there's a workaround, if you are not claimant a tuition credit.
