Q. How do I remove 10% penalty from Turbo Tax (TT) for 529 distribution since my son was on full scholarship and didn't use this?
A. It's complicated. Even if you have an exception to the penalty (the student had full scholarship), you still have to submit form 5329 to claim the exception. That means very carefully entering all the students expenses and scholarship amounts. Since TT apparently didn't get it right, there is a workaround you can use.
This assumes you (not the student) are the recipient of the 1099-Q and the 1099-Q goes on your return.
Try this: Enter the 1099-Q first. When you enter the 1098-T, later in the educational section, enter the 1099-Q box 1 amount in both boxes 1 and 5 of the 1098-T. That should balance everything out. Don't enter any other numbers. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. What you enter is not sent to the IRS.
For easier entry, you should first delete the 1098-T, you previously entered.
