Hi Hal.
I have reran the numbers in the situation above.
First of all, thanks for bringing the R&B into account for IRC 529 QEE purposes for a student living at home. It makes sense. An example in Pub 970 shows a student living at home applying scholarship proceeds to such expenses, supporting the concept. In the future I will consider the deemed R&B in making withdrawals.
When considering the deemed R&B into my recalculations, the results were the same whether the 1099-Q distributions were the gross amount of $5500 as listed on the 1099-Q or a net amount of $3400, due to the inclusion of the deemed R&B. The result were as you indicated in your reply. The parents had $4000 to use for AOC and the student had $2100 in taxable income. Which appears to be the most desirable results pending completion of the student's return.
I have attached a copy of my calculations for your comment. One thing I sruggle with is the proper application of the $2100 of taxable income to the student. My calculations assumed the $2100 is therefore constructively paid for outside 529 plan and applied as below:
| | | | | | | | | | | |
| | | | Student is P's Dependent. | | | | | |
| | 1098-T | | | | | | | | | |
| | | Tuition & rel exp (Tre) paid | | 5200 | Block 1 | | |
| | | Scholarships (Sch) | | 2100 | Block 5 | | | |
| | | Net | | 3100 | | | | | | |
| | Other QEE- Tre not in 1098-T | Required Books | 300 | | | | | |
| | | Deemed R&B | 5500 | | | | | | |
| | | | | | | | | | | |
| | 1099-Q | | | | Net | | | | Net | |
| | | Gross Distribution-Withdrawals (Wd)-Adj | 5500 | Block 1 | 3400 | |
| | | Earnings | 2000 | Block 2 | 1236 | | | | |
| | | | | | | | | | | |
| | 529 QEE | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | Deemed | | |
| | | | | | | All Expenses | Tre | R&B | | |
| | Results: Treating all Sch as Tax Free (TF) (applied to Tre) | | | | | |
| | | 529 QEE (Net Tre- Sch+QEE not in 1098-T+R&B) | | | | 8900 | |
| | | | 5200-2100=3100+300+5500 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | Deemed | | |
| | | | | | | All Expenses | Tre | R&B | | |
| | | | | | | | | | | |
| | Results: Treating 2100 as Taxable Sch (T) for R&B | | | | | |
| | re 529 and AOC | | | | | | | | |
| | | | | | | | | | | |
| | | | | 5200+300+5500 | | 11000 | 5500 | 5500 | |
| | | | TF Sch | 2100-2100 | | | | | |
| | | | Net QEE | | | 11000 | 5500 | 5500 | | |
| | | | Taxable Sch Applied | | | 2100 | 2100 | |
| | | | | | | | | | | |
| | | | Net- QEE available for dist | | | 8900 | 3400 | 5500 |
| | | | 1099-Q Withdrawals (Adjusted) | | | | | |
| | | | | | | 3400 | 0 | 3400 | | |
| | | | | | OR | 5500 | 0 | 5500 | | |
| | | | | | | | | | | |
| | | | Portion of Tre not in Qualifying Dist | | 1900 | | | |
| | | | Taxable Sch (Used for AOC) | | 2100 | | | |
| | | | Available for AOC | | | 4000 | | | |
| | | | | | | | | | | |
| | | | Note: 2100 taxable scholarship was taken into income and constructively | | |
| | | | | applied to Tre- considered paid for outside of 529 plan. | | |
| | | | | | | | | | | |
I apologize for presentation above. It was imported and I tried to clean it up the best I could.
As always any comments or suggestions would be appreciated, as I my have a similar fact situation in the future or also take an additional 1099-Q withdrawal for the deemed R&B.
