In 2021, my 529 was overfunded so I elected to withdraw $17,000 as an unqualfied withdrawl. But, this amount, while subject to tax, is not subject to penalty because my son received a tax-free scholarship from his school for $17,000. I'd like to know WHERE in the TT interview I can specify this fact so TT will tax but NOT assess a penalty? In the meantime, I went into forms and adjusted my 1099-Q manually in the "Distributions Not Subject to Additional 10% Tax" by updating box 2c (Included in income because beneficiary received tax free scholarship) with the full amount of my taxable income. By doing this, the form correctly updated my taxable income on line 7 in the "QTP Computation of Taxable Distribution" and removed the penalty. So, can anyone tell me where I enter the scholarship info in TT - I could not find it during the entry of the 1099-Q?
An additional problem I encountered is, even though I adjusted as described above, my new correct taxable amount on line 7 FAILED to carryover to the OTHER INCOME worksheet, line 4a. I had to override line 4a on that sheet to match line 7 as described above.
