529 college plan question

[Jana10]

We took out from from our daughter's 529 account for qualified tuition expenses. Since we paid the bill, I just had the money put into our account. The problem is we can't claim our daughter as a dependent because she is 22 and not a full time student. Now the program wants to tax it with penalty. Is there anything I can do?

[AmyC]

If all of the money went to qualified expenses for the beneficiary, nothing is taxable. If the 1099-Q was not income, it should not be entered. Tuck the 1099-Q into your tax folder with a copy of the bills it covered, in case the IRS asks. IRS Publication 970, Tax Benefits for Education states that nontaxable distributions should not be entered.