Yes, the 10% additional penalty for withdrawal of 529 earnings not used for education expenses by a military service academy student/designated beneficiary is waived. TurboTax does remove the 10% penalty in desktop and online versions. You should check Schedule 2, line 8 to verify there is no penalty being applied. You can use "Forms Mode" in desktop products or the following steps for online versions to "Preview your form 1040".
1. Select "Tax Tools" in the left hand menu
2. Select "Tools"
3. Select "View Tax Summary"
4. Select "Preview My 1040" in the left hand menu
5. Scroll down to the Schedule 2, line 8
If you have a desktop product you can also use "Forms Mode" to check form 5329 to verify the Smart Worksheet for line 6 shows the distribution as not subject to the additional tax.
If the penalty is showing up on those forms then revisit the education topic and verify your entries.
In the Education 529 topic after verifying the form information, "uncheck/recheck" the service academy selection.
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