Hi Community,
Doing my MFJ return, I filled in the info during federal tax from 1099-Q (from 529 plans)and 1098-T. We had two distributions one in the parent name and another one in student-child's name with student child as beneficiary in both distributions. College expenses were paid by these distributions only.
I am looking for help here in answering these question in Turbotax while doing PA state tax. Following question popped up in PA with 1st question filled out with amount what was in distribution amount in the parent name.
1. Total Distributions from Your Federal Return
2. Amount Used for Qualified Educational Purposes
3. Contributions Made in 2018 and Earlier
4. Excess Contributions Made in 2019
5. Prior Year Distributions
I am not sure about the answers to above.
1 Shouldn't amount on first one be changed to total of both 1099-Q distributions?
2. Should answer to qualified expenses (Question 2 above) be total expenses from 1098-T (box1) or total amount paid from distribution money.
3. What is Contributions Made in 2018 and Earlier (Question3 above) ? I have other child who is not in college. Do I need to include contributions done for him as well. Is it Contribution basis or earnings or both?
4. What is Excess Contributions Made in 2019 (Question4 above) ? Is it all 529 plan contributions made in 2019 ? Do I add contribution for both children.
5. What is Prior Year Distributions (Question5 above) ? This is first year in college so there is none. Do I have to keep track of it from now on?
Thanks for your advice. Much Appreciated.
Taxonama
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See page 38 of the PA-40 Instructions which explain Pennsylvanis is determining if any distribution was not for educational expenses. If this occurred, there would be a state level tax. Therefore, TurboTax asks these questions but it will likely result in no effect on your return.
1. Yes, you could. But technically, always go by the social security number on the instrument--your daughter is not filing her taxes on your return
2. All educational expenses. Please see this article about 529 distributions
3. Tie it to the funds used just for your daughter, no earnings
4. It depends if you were out of compliance with your particular 529 plan in your particular state. It is likely n/a
5. n/a since this is the first year, you are correct. Yes, it will be easier to keep all Section 529 information and forms received together for future reference
Appreciate your quick and helpful response. Thank you very much.
-Taxonama
Hi!
I'm a second year college student. Are the "contributions made in 2020 and earlier" and "prior year distributions" the same amount?
Thanks for the help.
No, 'contributions' refers to amounts that were deposited to an account.
'Distributions' refers to amounts that were withdrawn from an account.
If you are referring to a Tuition 529 Account, 'contributions' are usually made by a parent, grandparent, etc. to the account.
'Distributions' used to pay Education Expenses for a beneficiary are reported on Form 1099-Q.
Click this link for info on 529 Plans that may help you.
I received a distribution from a PA 529 account that I opened for my child. He is not going to college so I closed the 529 account; therefore, the entire amount was an unqualified distribution. I have entered the information on Form 1099-Q (Gross Distribution, Earnings, and Basis) into TurboTax and the software handles the Federal return properly such that the earnings are taxable. Unfortunately, TurboTax does not ask if I deducted any of the 529 contributions my past state taxes - which I did. Therefore, I believe that TurboTax is understating my state tax obligation. First, am I correct? If so, how do I address this efficiently? Should I use my current TurboTax file to file my Federal return and then perform a second iteration for my state tax return in which I enter the Gross Distribution as my Earnings and enter $0 in place of the basis (Box 3 of 1099-Q)? This would essentially mimic the entire distribution as earnings so that I pay tax on the entire distribution.
1. Yes, you do need to enter prior year contributions that were taken as a deduction with different rules for 2005 and before versus 2006 and later. PA DOR states:
Distributions from an IRC Section 529 College Career and Savings Program Account not used for qualified educational expenses are taxable and reportable as interest income on PA Schedule A and Line 2 of form PA-40. The cost recovery method must be used to determine the taxable amount for contributions made in tax years 2005 and earlier. The total amount of distributions that were claimed as deductions for tax years 2006 and later is taxable.
2. The program does ask questions about your PA 529 distribution. You will need to lie to the program to get the correct taxable amount on your program. When it asks about contributions made in 2021 and earlier years, enter zero since it is all taxable.
3. No need for a separate set of filing since you can enter zero in PA for the basis to show fully taxable in the worksheet using steps from #2.
Here is the visual of the input screen and the worksheet.
Many thanks for the clear and quick answer!
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