529 Plan for my spouse

Forum|Forum|3 years ago
April 7, 2023
1 reply
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My wife is getting her Doctorate and so we transferred some of our children's 529 money into a 529 account in her name. Then we took a distribution this year for her tuition. TurboTax is not recognizing this as an authorized distribution. It is listing the earning portion of the distribution as taxable income. In the section of TurboTax where you normal enter the education expenses (tuition, books, room and board, etc.) that option does not even pop up for my wife. What am I doing wrong?

MaryK4

Level 15

There are two places where you have to indicate the student- once in the 1099-Q entry and again in the Educational Expenses section. Be sure you entered the information in both places.

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lbcusafAuthor

Level 2

Thank you for the reply. I believe I have selected my wife as a student in both locations. We get a message stating our modified adjusted gross income exceeds the maximum limit so we can't claim tuition and other fees because our income is too high. I understand that would be the case for a deduction but that should not be the case for using the 529 money to reimburse ourselves for the tuition payment. Should it?

tmunoz

Level 13

This sounds like a message for not qualifying for the American Opportunity Credit or the Lifetime Learning Credit, not a 529 account that provided a Form 1099-Q. There is no income limitation on qualifying educational expenses toward a 529 distribution.

You may not be receiving the credit for one of these common reasons:

You are using the Married Filing Separately filing status
Your adjusted gross income (AGI) is too high
- The American Opportunity Tax Credit AGI limit is $90,000 ($180,000 for joint returns)
- The Lifetime Learning Credit AGI limit is $90,000 ($180,000 for joint returns)
Your educational expenses were paid with tax-free scholarships, fellowships, grants, education savings account funds, tax-free savings bond interest, or employer-provided education assistance.

To be sure the educational expenses were reconciled with your 529 distribution, you can check Part VIII of the Student Worksheet on your return, when you view or download before filing.