I received a distribution from a PA 529 account that I opened for my child. He is not going to college so I closed the 529 account; therefore, the entire amount was an unqualified distribution. I have entered the information on Form 1099-Q (Gross Distribution, Earnings, and Basis) into TurboTax and the software handles the Federal return properly such that the earnings are taxable. Unfortunately, TurboTax does not ask if I deducted any of the 529 contributions my past state taxes - which I did. Therefore, I believe that TurboTax is understating my state tax obligation. First, am I correct? If so, how do I address this efficiently? Should I use my current TurboTax file to file my Federal return and then perform a second iteration for my state tax return in which I enter the Gross Distribution as my Earnings and enter $0 in place of the basis (Box 3 of 1099-Q)? This would essentially mimic the entire distribution as earnings so that I pay tax on the entire distribution.
