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Education
Yes! There is a huge glitch with 529 accounting. I am including a thread I found that helped me. I copied the thread in Italics below. The question was raised by user30730966:
We took a 529 Distribution for 2016. T-Tax says we have an excess distribution. The QTP distribution worksheet is not taking into account form 1098-T tuition. Why?
We took a 529 Distribution for 2016. However Turbo Tax is telling us we have an excess distribution and is calculating a tax on the excess. This is because the "Taxable Qualified Tuition Plan (QTP) Distributions" worksheet is NOT taking into account the tuition and fees amount entered for form 1098-T. In addition, values entered into the college expenses step-by-step area in any of the 3 Books entries are also NOT being counted as an expense. I understand that these are not valid expenses for the purposes of tax Credits, by why does the 529 calculator appear to be messed up?
RECOMMENDED ANSWER
4 people found this helpful
If you know, for sure, that you have enough qualified expenses to cover the entire distribution, just don't enter the 1099-Q, at all. There is no actual IRS form that it goes on.
Otherwise, after entering the 1099-Q, you have to enter enough qualifying expenses to offset the box 1 amount.You will need to visit the education section to enter the tuition to offset the 1099-Q.
Follow these steps. Go to:
- Federal Taxes
- Deductions and Credits
- Education
- Expenses and Scholarships
You will reach a screen "Amount Used to Calculate Education Deduction or Credit". Enter 0 (TurboTax may have pre-populated the box and you should change it to 0).
I have two sons in college now and saw a huge jump in taxes owed ($5000) after entering my 1099-Q, even though the distribution was considerably less than my expenses and should not have been taxed. Two things helped. First, I zeroed out the "Amount Used to Calculate" per the instructions in the answer above. Turbo Tax had auto-filled these boxes with enormous numbers, and I think those amounts were being subtracted from my expenses such that my 529 distribution was wrongly considered an excess distribution and was thus taxable. (Ironically, my sons didn't even qualify for the tax credits.)
My second fix was to enter Room and Board expenses after a long, hard search for WHERE to enter them. Under the "Here's your Education Summary" tab, choose "Other Education Expenses" then "Did child pay for Books or Materials to Attend School." I chose "YES" to get the option to "Enter child's Education Expenses" that includes a box to enter expenses for Room and Board. I actually had no book receipts and had skipped over this tab, not expecting Room & Board to be filed under the "Books or Materials" heading.
I have not had a problem with expenses being assigned to the wrong child, but I would suggest deleting the child and starting over.
I don't like the part of the advice above that suggests not entering 1099-Q amounts into Turbo Tax. It just seems like a sure-fire way to get a nasty notice from the IRS in a year or two.
This has been a frustrating few days for me. I know I have overpaid in the past due to this same glitch, but I had not been able to figure out WHY my distribution was being taxed or find a fix. My guys are 24, 22, and 19 -- I've had college expenses every year for the past six years -- and I am just now learning how to correct Turbo Tax's faulty accounting. Grrrr.
FIX THIS PROBLEM, TURBO TAX! I TRUSTED YOU!
