We have a complicated scenario. My son has a lot of scholarship money and also made 529 withdrawals in 2024. The rough numbers from his 1098-T are box 1 $14,000 and box 5 $36,000. For some reason, he was led to believe that he could take 529 money out equivalent to his scholarship amounts without penalty, so he also took about $36,000 out of his 529. He knew he would pay taxes on the $36,000 529 money but thought there would be no penalty. (He does not need this extra 529 money for his education due to all of his scholarships and thought it would be wise to take it out while he is not making much money vs. when he is in a higher tax bracket in a few years). Now, it appears he is paying taxes on both the scholarship money, plus the 529 money, plus the 10% penalty from the 529, plus another penalty for not paying estimated taxes all year. In addition, it appears he will be taxed in my tax bracket because they are asking him for my 1040 information. Because of his scholarship money, it looks like we won't be able to get the education credit on our tax return either. It's a mess! Is there anything we can do to minimize his taxes owed?
