Q. Do I owe taxes/penalties on the $3,493.43 above the $10K loan allowance?
A. Yes, unless he/she was still a student in 2020. You cannot count the 2019 tuition because it was not in the same year as the withdrawal (distribution). Although a student must be your dependent for a tuition credit, he only needs to be the plan beneficiary for a qualified 2020 distribution.
Q. How do I enter all this so TurboTax will compute it correctly?
A. The 1099-Q interview will ask about loan payments. You do not need to enter anything at the education expenses section. Even if you claim his 2020 tuition for the remaining $3493, there is a place to enter that in the 1099-Q section when the student- beneficiary is not a dependent.
