529 Plan Changing A Refund

Forum|Forum|3 years ago
April 18, 2023
1 reply
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I am helping my dependent college-age daughter with her federal tax return. She is the recipient of a College Illinois 529 plan. As the parent, I inputted her 1098-T into my tax return. She earned about $4,500 last year. Up until I got to the 529 section, TurboTax showed a refund of $187. Once I entered her 1099-Q form, which shows box 1 at $8,433, box 2 at $2,403, and box 3 at $6,030, TurboTax then showed that she now owes $254. I thought that the College Illinois 529 plan was tax-free. Did I input something wrong? Am I required to input her 1099-Q form? Thanks.

Not A Product Question

AmyC

Level 15

IRS Pub 970 states: Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return.

Only input the 1099-Q if there was income left after all qualified expenses are subtracted. Either way, make a note of your calculations and tuck it in the tax folder in case the IRS asks.

If she lived in a dorm, those expenses may have been more than the 1099-Q.

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nambumanAuthor

Level 2

Thank you AmyC. I am still uncertain what to do. The 529 plan was used to pay her tuition. Any remaining went to be paid, automatically, to her housing and food plan. Do I not input the information from the 1099-Q at all into TurboTax and let the refund take place? If yes, why isn't TurboTax smart enough to tell me to do that?

MarilynG

Level 15

Yes, if the 1099-Q was used for Qualified Education Expenses (including Room & Board), it does not need to be entered in any tax return.

If your student inputs the 1099-Q in her return, she does not have the corresponding Education Expenses to report (since you reported the 1098-T in your return), which is why her refund/tax due changes.

Here's more info on Form 1099-Q.

@nambuman

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