topic Question on amount of education account distribution to exclude from additional tax in Education

Question on amount of education account distribution to exclude from additional tax

praasppn — Sun, 02 Feb 2025 15:16:24 GMT

I would like to know how to compute Line-6 in Form 5329 in the following:

Let's say -

1. I had 1098-T of $500 in box1 as well as box5 (scholarship, grant)

2. I had 1099-Q from a 529 account of box 1 $800 and box2 $700

I understand that I will have to pay tax and additional 10% tax on the edu acct withdrawal.

My question is - can I exempt the full $ 500 from this additional 10% in line-6 of form 5329 ?

However, turbotax computes it as 700 * (500/800) meaning the proportionate amount from the earnings

and allows me to exempt only $437.50(438) as the amount exempt from 10% tax.

I tested the same scenario in TaxAct but that software simply asks me to manually enter the line-6 5329.

It does not even to attempt to compute that automatically.

I checked the instructions for Line-6.

Could someone give me pointers on where this is explained by IRS ? What is the correct calculation ? Is it full or proportionate ?

Re: Question on amount of education account distribution to exclude from additional tax

MarilynG1 — Mon, 03 Feb 2025 17:13:10 GMT

Remember that the 1098-T only reports Tuition. If you had other Education Expenses to add, you may cover the $500 distribution reported on the 1099-Q.

If that applies, you wouldn't need to enter the 1099-Q in your return.

Re: Question on amount of education account distribution to exclude from additional tax

Hal_Al — Mon, 03 Feb 2025 17:36:05 GMT

Q. Can I exempt the full $ 500 from this additional 10% in line-6 of form 5329 ?

A. No. TurboTax is doing it correctly and $438 is the correct amount for line 6 of form 5329.

Your $500 scholarship only reduces the box 1 amount ($800) to be used in the calculation.

700 * (500/800) = $438 is correct.

Re: Question on amount of education account distribution to exclude from additional tax

praasppn — Mon, 03 Feb 2025 17:48:28 GMT

Thanks. In this particular scenario, there is no other educational expenses.

Re: Question on amount of education account distribution to exclude from additional tax

praasppn — Mon, 03 Feb 2025 17:49:16 GMT

ok, thanks for the confirmation.