My daughter received a scholarship for $18,000 in 2020. This is included on the 1098-T (box 5)
I made a non-qualified withdrawal from her 529 for 18,000 to take advantage of the scholarship exception. It is my understanding that the earning portion of this withdrawal (11,270 from the 1099-Q) should be taxed as income to me but I should not have to pay the 10% penalty since this was the same amount as the scholarship.
My issue is that I can't convince TurboTax to notice this and not calculate the penalty. I've entered the 1098-T which shows the scholarship. I've entered the 1099-Q with the target student set to "This distribution was not used to pay any education expenses". When I look at the print preview, Form 5329 shows a 10% penalty.
I have no idea how to convince TT to do the right thing here. I've seen other threads talk about the order you enter the forms in - I've tried both ways. I've redone the entire education section.
Am I missing something? Is this just too complicated for the online TurboTax? Would the downloadable version of TT work better?
