topic The current Turbo Tax software is counting my 529 qualified distribution earnings as taxable income. It is supposed to be tax exempt. What am I missing? in Retirement tax questions

The current Turbo Tax software is counting my 529 qualified distribution earnings as taxable income. It is supposed to be tax exempt. What am I missing?

gmatoc — Thu, 05 Feb 2026 11:31:34 GMT

Re: The current Turbo Tax software is counting my 529 qualified distribution earnings as taxable ...

ThomasM125 — Thu, 05 Feb 2026 20:24:14 GMT

The earnings on the distributions are tax exempt if you use them for qualifying education expenses. You should enter the Form 1099-Q which reports the 529 plan distributions in TurboTax first. Then enter your Form 1098-T. When you enter the Form 1098-T you will be asked if any of your scholarship income was used to pay for room and board and to enter the amount. If you used the scholarship money for room and board, then that part of the 529 distributions cannot be used to pay for it, and sometimes that can make a portion of the 529 plan distributions taxable, so you need to review your entries there.

Also, if your scholarship income is more than your education expenses, that can make a portion of your 529 plan distributions taxable, since the scholarship money paid for your education expenses.

Re: The current Turbo Tax software is counting my 529 qualified distribution earnings as taxable income. It is supposed to be tax exempt. What am I missing?

leesho — Sat, 21 Feb 2026 21:17:00 GMT

TurboTax seems to have several significant errors this year that it has not had in the past. I am having the same issue with TurboTax taxing the Earnings from my SC 529 Plan, even though they are not taxable. It is never asking me for room and board or other type expenses. I didn't have an issue in the past addressing this. I think i could have done my taxes faster if I had printed out the forms and filled them in manually.....like I did when I was much younger!! Very disappointing!! I'd love to hear TurboTax explain this.

Re: The current Turbo Tax software is counting my 529 qualified distribution earnings as taxable ...

AmyC — Tue, 24 Feb 2026 18:53:28 GMT

The off campus housing goes under room and board. We have been told the room and board update should be coming out this weekend. Perhaps as soon as Friday night.

If you have a 529 that isn't taxable, don't enter it at all. Only taxable portions should be reported. Since the 1099-Q was not income, it should not be entered. Tuck the 1099-Q into your tax folder. IRS Publication 970, Tax Benefits for Education states that nontaxable distributions should not be entered.

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@leesho