1099-Q

[NCperson]

nope - they will not chase you.... only Box 2 is taxable income.  Box 1 is after-tax money in any event.

Remember how the 529 works.... you put AFTER TAX money into the 529 and then when you take it out, the EARNINGS are tax free; the principle is already after-tax so it's not subject to tax under any circumstances.

There is nothing on your son's 1099Q that is taxable since Box 2 is empty (I do find that odd). The $8,000 in box 1 and box 3 is the return of the principle (after tax dollars) that were deposited into the 529 years ago,   

the excess distribution was simply the return of you after tax money in this case hence not taxable.

[NCperson]

on your tax return, just detail the expenses that support the $26,000 in payments to the college. You have the 1098-T and you have the statements from the college, right? and those statements detail the tuition, room and board, books, fees, etc. right?  if so, you have nothing to worry about. (and the IRS has bigger fish to fry in any event!)

[Bestvalue888]

Oh that is why IRS don’t even care about the Box1 or Box3 amount as it is taxed already. I thought I will be taxed on the excess withdrawal I made. I really didn’t know why the $8K we got from 529 offered by TD Ameritrade has no earning either but it doesn’t lol. 

So in your opinion, if I can keep a good record of the $27K expenses to show that this offsets my 1099-Q $26K with the earning on it, then I should be fine because basically I don’t owe tax on this earning. But do I need to report 1098-T for that $7K tuition still? Thanks.

[Bestvalue888]

Yes I have all the documentation from the college of what I paid for, tuition and room and board. So I don’t need to even report 1098-T either, correct?

[NCperson]

correct - it has no impact on your taxes since you stated your income is high enough that you are ineligible for any tax brakes 

[Bestvalue888]

That is correct. My married joint income is over $250K so when I put the 1098-T and 1099-Q just to check, the result was I am not qualified for tax credit due to income. Ok cool I will just keep all that as a record then . Thanks so much for your detailed explanation and your patience. This is really a big relief on my shoulder. Thanks so much!!!