@Hal_Al ,
I’m still not clear on whether taxable scholarships our student reports as income increase the qualified portion of our 529 distribution or reduce it – depending on whether we took a 529 reimbursement for some of the taxable scholarship total, or didn’t take a 529 refund.
Tuition is 100% paid with a restricted scholarship (no impact).
$766 in fees go to AOTC (< $4K fees & supplies), the rest aren’t required for attendance and count as 529 NQEE together with living expenses: $1,578 in 529 non-qualified expenses.
R&B = $12,056
One $2K unrestricted scholarship we reclaimed from the 529 – after it was applied to R&B on direct bill. Can we still count this (if paying taxes on it) toward allowed 529 expenses (R&B)? So does that increase 529 QEE out of $14,693 total distribution? (Or reduce it?)
Another ~ $2K unrestricted scholarship we took as a refund direct from the college and applied to living expenses. If taxed on it, does this increase or reduce our 529 QEE out of total distribution?
I assume both scholarships are fully taxable. Right now I have $11,946 as 529 QEE, and $2,747 as 529 NQEE, but I haven’t factored in the second scholarship.
Also, since our kid has tax-free scholarship more than triple the amount of 529 NQEE, I assume there's no 10% tax penalty on 529 NQEE? Thanks for your help!!
