Our son took classes in spring, summer, and fall semesters in 2024, all at the same university.
For spring semester we (parents) paid the school $9,000 from our checking account. For summer semester we also paid the school $7,000 from our checking account. For fall semester we issued an $11,000 payment directly to the school from our son's 529 savings account (I am the owner, he is the beneficiary).
Our son received a 1099-Q from the 529 plan for $11,000. My wife and I reimbursed ourselves from the 529 account so we received a 1099-Q from the 529 plan as well; however, ours was for $25,000 because I inadvertently reimbursed ourselves twice for the $9,000 payment. (Not very smooth on my part.) This results in an excess distribution.
The excess distribution is made even greater by the fact that our spring semester payment was drawn from our checking account in late December, 2023 but not received by the institution until early January, 2024. (Again, not one of my better moments.) So I have spring semester money coming out of the 529 account in 2024 but the corresponding qualified expenses do not appear on his 2024 1098-T; the 2024 1098-T reports $20,000 of qualified expenses.
I have done the proration of earnings calculation to determine how much is taxable ($6,000). Can all of this be reported on his return? It would make more sense to have it taxed there, of course, as compared to our return. (If it is taxed on his return, it would be pretty much a wash whether he does or doesn't take the non-refundable AOTC once we factor in the loss of the $500 dependent credit on our return.)
Or because our distribution exceeds the amount reported on the 1098-T do I have to allocate some or all of the taxable earnings as income to my joint return with my wife? (I would guess that a return with distributions exceeding qualified expenses but claiming no additional taxable income might raise some IRS eyebrows.)
What are the rules for how excess distributions can/cannot be allocated between parent and student returns when each of them received 1099-Qs?
