Q. TT is telling me that they are liable for 10% in income taxes even though they are inside of the first tax bracket. No deduction for this income?
A. A dependent' standard deduction is only $1250 or his earned income + $400. A taxable 529 distribution is unearned income, so he only gets a $1250 standard deduction, not the full $13,850.
Q. I'm guessing this has something to do with the kiddie tax? How do I handle this issue?
A. Yes, the kiddie tax applies. You'll need your info or a reasonable estimate.
Q. Is there a way to achieve what I sought by handling matters differently?
A. Sort of. You can spread it out over several years. You can also change the beneficiary to another family member. A new provision allows rolling the money to the beneficiary's Roth IRA (in steps)
