Q. Will my son have to report this amount as income on his 2023 return?
A. No, for a couple of reasons. Read on.
Q. It appears the payout does not have a taxable component to it (the distribution is all base). Does this matter?
A. Yes, only the earnings portion of a 529 plan (technically the prepay plan is a 529 plan) is taxable. Since there were no earnings, there's no tax or penalty .
But, that's academic. Even though the Florida Prepaid Plan may only be disbursed for tuition, at tax time you may allocate it to other expenses, in particular room & board, an authorized 529 plan expense. So, you can claim both the AOTC and a tax free distribution from the Prepaid Plan, without double dipping on the tuition. R&b is a qualified 529 plan expense, even if the student lives off campus or at home.
Reference: https://www.myfloridaprepaid.com/resources/529-basics/#:~:text=There%20are%20two%20types%20of,author....
