Questions re: non qualified distribution from 529 due to scholarship

[ArchesNationalPark]

• Is this correct?   Distributions from a 529 education plan above actual ed expenses but for the amount of the student's scholarship do not incur the 10% penalty for non-educational distribution. They are only subject to taxes on the earnings portion.
• Any 529 distribution that is more than the qualified expenses plus the scholarship amount, will be subject to the 10% penalty in addition to taxes on that amount?
• In previous years, we didn't take any or full distributions for the amt of annual scholarships bc we thought the $ would be needed for future years. Now there is extra money. Is there anyway take 529 distributions for the scholarship amounts from those prior years (2017-2019), so as to avoid the 10% penalty, and if so, how to do this in Turbo Tax bc this years 1098-T will only show the scholarship from this year.  
• Thanks for any help!  Much appreciated.

[Hal_Al · Accepted solution]

Q. Is this correct?   Distributions from a 529 education plan above actual ed expenses but for the amount of the student's scholarship do not incur the 10% penalty for non-educational distribution. They are only subject to taxes on the earnings portion.

A. Yes

Q. Any 529 distribution that is more than the qualified expenses plus the scholarship amount, will be subject to the 10% penalty in addition to taxes on that amount?

A. Yes, but the tax and the penalty are only on the earnings portion of the excess (non qualified) distribution. 

Q.  Is there anyway take 529 distributions for the scholarship amounts from those prior years (2017-2019), so as to avoid the 10% penalty?

A. No, in my opinion (and most others).  But there is disagreement on that topic. For a discussion, see this thread: https://ttlc.intuit.com/community/college-education/discussion/529-plan-withdrawals-and-prior-year-

[Hal_Al]

One way to deal with left over money in a 529 plan is a change of beneficiary. See:

https://www.savingforcollege.com/article/how-to-change-the-beneficiary-on-your-529-plan

[ArchesNationalPark]

Thanks for your good info above and suggestion for a beneficiary change. Unfortunately, there are no college bound beneficiaries in the family circle, as everyone has completed college or not going. The oldest of the next generation is only age 1. 

Saw an article that 529 money can be used for non-education expenses for people who are on Soc Sec disability (directly without having to roll it into an ABLE account). Do you know anything about that or where I could find out more info?

[Mike9241]

i have provided a link to IRS PUB 907 which has a section about ABLE accounts

https://www.irs.gov/pub/irs-pdf/p907.pdf 

other info can come from the plan administrator of your 529 account