Here is the basic scenario -
1) Our son graduated from US Naval Academy in May 2022.
2) His Grandparents had a 529 Plan that had a gain, that was distributed to him post graduation. The distribution was NOT used for education. He got the cash and invested it as he was done with college.
3) So here is the TurboTax problem - as a graduate of a service academy, he does not have to pay the 10% penalty on the distribution gain. He has to pay the tax on the gain (and it is taxed as income), but no matter what choices I click in the step-by-step, I cannot have it fill out Form 5329 correctly. It puts all the GAIN on line 7 (which is amount subject to additional tax, and then on line 8, it assess a 10% penalty).
4) If I manually update the form 5329 and move line 7 to line 6 (distributions not taxable per instructions), it says it is an override and I cannot file electronically during smart check.
Basically, he needs to pay income tax on the gain, but he doesn't need to pay the 10% penalty. I need TurboTax to allow me to enter it that way, or simply override the form.
Anyone know how I can make this work???
Thanks in advance! GO NAVY!
