Q. What if we paid for 2022 tuition in 2023, can a 529 distribution be taken in 2023 to pay for that (would it be considered a qualified distribution)?
A. No. 2022 tuition must be paid in 2022 and the distribution taken in 2022 to be considered a qualified distribution.
Q. Re #2, the 529 fund administrator stated that because the distribution is being sent to a k-12 school, they will issue the 1099-Q to my mom who is the owner and tag the distribution on the form as 'Other.' Is this correct?
A. I'm not aware of an exception to the "who is the recipient" rule for K-12. But, that probably doesn't matter. The bigger is issue is the year.
Q. So I assume that she will need to declare it on her IRS tax form and be able to support the validity of the distribution using the school tuition bill as supporting evidence. Is that assumption correct?
A. If it is a qualified distribution, there is nothing for the grandparents to report on their tax return. . When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.
If it is not a qualified distribution (the distribution was in the wrong year), then the parents would not enter any qualified expenses, in TurboTax (TT) and TT would calculate the entire box 2 (of the 1099-Q), as taxable.
Q. Is there any concern this could trigger an IRS audit?
A. Yes, but no more than anyone else getting a 1099-Q. When a 1099-Q is for a qualified distribution, there is no IRS form sent with your tax return to document it. You do not include a copy of the school tuition bill with the tax return.
