For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (the student). The "recipient" of the distribution
can be either the owner or the beneficiary depending on who the money was sent
to. When the money goes directly from the Qualified
Tuition Plan (QTP) to the school, the student is the
"recipient". The distribution will be reported on IRS form
1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will
be on the 1099-Q. If you are the recipient (your name and SS# are on the 1099-Q,) you report it on your return, even though the student is no longer your dependent.
You cannot double dip. If your son is going to claim the American Opportunity Credit (AOTC) he (or you) cannot use the same expenses to claim the earning exclusion on the 1099-Q.
Total qualified expenses
(including room & board) less amounts paid by scholarship less amounts used
to claim the Tuition credit equals the amount you can use to claim the earnings
exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including
room & board)
-$3000 paid by tax free scholarship
-$4000
used to claim the American Opportunity
credit
=$3000 Can be used against the 1099-Q (on the recipient's return)
Box
1
of the 1099-Q is $5000
Box
2
is $600
3000/5000=60% of the
earnings are tax free
60%x600= $360
You (or he) have $240 of taxable
income (600-360)
**Alternatively; you can just not report the
1099-Q, at all, if your student-beneficiary has sufficient educational
expenses, including room & board (even if he lives at home) to cover the
distribution. You would still have to do the math to see if there were enough expenses
left over for you to claim the tuition credit. Again, you cannot double dip! When the box 1 amount on form
1099-Q is fully covered by expenses, TurboTax will enter nothing about the
1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for
your records, in case of an IRS inquiry.
