Q. Before I give it to her is there anything I'm missing here?
A. No. A sibling, even an older one is a qualified transfer beneficiary. If she is a half time or more student, then room & board are also qualified 529 expenses, even if she lives at home.
Q. She would still enter the 1098-T on her taxes?
A. Yes, since she is no one's dependent.
Q. I can't remember at all if there is a need to show any amount that has come from a 529?
A. The 529 plan will issue a form 1099-Q for any distributions. But, it does not have to be entered on a tax return, if it was all used for qualified expenses.
For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.* The recipient's name & SS# will be on the 1099-Q.
*You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!
References:
- On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
