Bug in 529 reporting if dependent final year of college and tuition paid in December of prioor year

[bradbort]

In the 2023 version of turbotax, if you have qualified 529 distributions, received a1099Q, but did not receive the T form from the college because all tuition was paid for the final year in December of the prior year, Turbo Tax throws you into a world of pain. 

It will guide you through entering the 529 information, but will not open the guide for qualified expenses. If you leave it like this, everything from 1099-Q in earnings (box 2) will be shown as income on federal and state forms. This is wrong on the face of it, because if really was non-qualified, it would also draw a penalty, which it does not. 

TT gives no guidance for what to do next. What you have to do is go into the College Savings Trust fund account, click on the student dependent worksheet 2/3 of the way down, and then fill it out. It is, however insanely complicated, and it took me hours to get to the point where no taxable income was reported, since there were sufficient qualified expenses. 

When I spoke to phone support, they were not great. At first she said that I did not have to file form Q if I had enough qualified expenses. This is incorrect. It is sent to the IRS. Next she said that box 2 income on form Q was supposed to be reported as income/earnings, so nothing was wrong. This is also not correct. Parts of box 2 are only reported as income if they are not all spent on qualified expenses. 

All in all, 6 hours of my life I won't get back. TT needs to fix this bug so that people get a nice walk through even if they only have a form Q, and not T, as above. 

[KrisD15]

Distributions from a 529 plan are tax-free if used for education expense the same year. 

A distribution may be made in December of one year to pay expenses for classes starting in January, February and/or March of the following year, but can't go backwards. 

TurboTax does not provide a way for expense from a prior year to be applied to a distribution.

The IRS does not require the distribution (1099-Q) be reported if it is tax-free. 

According to the IRS:

“The designated beneficiary of a Coverdell ESA can take a distribution at any time. Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (AQEE) (defined later) the beneficiary has in the same tax year.”

“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.”