Can 529 Distribution be Offset by Tuition Scholarships

[ubdkslw]

Son received full tuition college scholarship therefore, we have some remaining dollars in his 529 account that were not used for his other college expenses (room, board, books, fees, etc.).  Can the tuition scholarship be used to offset the distribution of the remaining dollars in his 529 to avoid penalty?  I presume the gains will be treated as taxable income.  If 529 can be offset by scholarships, will TurboTax software handle this scenario (and resulting reporting of the gain on investment) or will I need to consider other filing methods?  Thanks.  Let me know if additional info needed.

[KeithS01]

Hi, @ubdkslw.

There is, indeed, an exception to the penalty for scholarships. And, TurboTax can handle that distribution. There is a really good question and answer here about how to correctly input the information into TurboTax to obtain the correct result.