The earnings portion of the distribution is reported as taxable income on line 8 of Schedule 1. On form 5329, TurboTax (TT) will enter the taxable amount on line 5 and subtract the same amount on line 6, so that the amount subject to the 10% penalty (on line 7) is zero.
The 1099-Q interview, in TT, will ask if the beneficiary attended a service academy.
In TurboTax (TT), enter at:
Federal Taxes Tab (Personal for H&B version)
Deductions & Credits
-Scroll down to:
--Education
--ESA and 529 Qualified Tuition Programs (1099-Q)
When asked "Who's the student", do NOT check "the distribution was not used to pay any education expenses. If the cadet is not listed as a dependent, on your return, select "Someone else not listed here". Leave the educational expenses boxes empty.
