topic NC529 Plan in Education

NC529 Plan

spivey529 — Fri, 04 Feb 2022 11:21:15 GMT

In 2021, I withdrew $5500 from each of the NC 529 accounts that I set up for my grandchildren to pay for their K-12 education. I am listed as the participant on the account and each of them is listed as beneficiary on their individual accounts. I deposited the money in my checking account, had a cashier's check made out to my son, who then paid the tuition at the school. However, the 1099-Q form I received shows me as the recipient, $2242 as earnings, the box is checked that says 'recipient is not beneficiary', and it is resulting in me owing more taxes. My understanding of NC 529 is that if it's used for K-12 tuition it should be taxable. Is it possible I made the withdrawal incorrectly? If so, how can I get this corrected?

Re: NC529 Plan

Hal_Al — Fri, 04 Feb 2022 12:27:23 GMT

Since the money was used for qualified expenses, none of it is taxable. The simplest thing to do is just don't enter the 1099-Q in TurboTax (TT).

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

That said, the 1099-Q interview will allow you to enter offsetting expenses (it's actually easier in your situation than when the student is your dependent).

When asked who the student is, select "Someone not listed here". Then follow the interview. You'll eventually be asked what level of school the student attended and finally be given a screen to enter the expenses paid. The fact that the expenses were paid indirectly does not change the fact that the 529 plan was used for qualified expenses. In fact, all that needs to happen is for the student to have had qualified expenses in the same year that the distribution was made.

Re: NC529 Plan

spivey529 — Fri, 04 Feb 2022 18:08:29 GMT

Awesome! Thank you so much!