Cam you clarify your situation? Is the beneficiary of the 529 Plan you (or your spouse), a dependent on your tax return, or a non-dependent?
Beneficiaries of 529 funds were grandchildren (4). They were not dependents. All proceeds were used for approved education expenses.
thank you,
[PII Removed]
If all the distribution exceeded the educational expenses, the 1099-Q doesn't need to be reported on your tax return.
The 529 distribution (reported on Form 1099-Q) only needs to be reported on the tax return of the person whose SSN is on the form if the withdrawal is more than the tuition paid in Box 1 of the 1098-T plus other adjusted qualified educational expenses. In that case, the earnings on the excess distribution would be taxable income.
First, determine if the Form 1099-Q needs to be reported on the tax return by comparing the withdrawal with the tuition paid on the 1098-T added to other qualified educational expenses. To find out what are qualified educational expenses, review the IRS Tax benefits for education: Information center. Refer to the TurboTax articles Guide to IRS Form 1099-Q: Payments from Qualified Education Programs and What is IRS Form 1099-Q? for further details.
Secondly, enter the 1099-Q if the withdrawal exceeds the educational expenses by following the directions in the TurboTax Help article Where do I enter a 1099-Q?
I understand the tax law regarding the 529 accounts for educational expenses. I don’t believe that the current version of TurboTax handles the data from the 1099-Q accurately.
If a 1099-Q is entered, the program is looking to tax the income. It does not expect extra forms to be entered without a reason. 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.