Hello @Hal_Al
You have been a big help over the last few years in guiding me how to qualify for the AOTC. I have a related question that I was hope you can help with.
I am trying to do some tax planning before the end of the year in order to guide how much money to withdrawal from my 529 account.
As I did last year, for my children I'm paying all tuition, fees, room and board, minus a scholarship, through a 529 distribution. Also, like last year, in order to get the AOTC credit I am assigning $4,000 of a scholarship for my child to room and board (making it taxable on my child’s tax return. However, I am coming to the realization that I will have more funds in my 529 account than my children will use in there undergraduate carriers. I know this can be used for grad school, fund a Roth IRA, etc. Notwithstanding these strategies, I was wondering if it would be legitimate to take an even greater distribution from the 529 account (still less than the scholarship amount) in order to ultimately lower the balance when they are finished school.
I would assign this additional distribution to my child’s room and board (make taxable to them). For example:
Tuition $32,000
Scholarships = $17,300
R&B and other = $10,000
Qualified Expenses ($32,000+$10,000-$17,300) = $24,700
529 withdrawal = $30,000
Amount of 529 withdrawal over Qualified Expense ($30,000 - $24,700) = $5,300
Amount needed to assign to R&B to max AOTC = $4,000
Total amount of scholarship to assign to R&B = ($5,300 + $4,000) = $9,300
I have been playing around with the withdrawal amount to optimize the taxes on my kid’s returns. A
Does this all seem Kosher. Are there any pitfalls to watchout for in TurboTax to make sure this is done correctly? I will be doing my return and my children's' returns.
Thanks for your help.
