Our son received a sizeable scholarship for each of the 4 years he attended college from 2016-2020. We did not withdraw money from his 529 using the scholarship exception to the tax penalty because we knew he was going to go to graduate school. He started graduate school in the fall of 2022, after 2 years of working for an Americorps-related non-profit. So he now has $12,540 of an Americorps Segal Award to use for qualified education expenses, and we forsee that there will be 529 funds left over when he finishes graduate school. Can he apply the Americorps Award to the scholarship exception and withdraw $8,000 from his 529 without paying a tax penalty? If yes, how does this affect how he files his Turbotax tax returns?
No. The Americorps Segal Award is not tax free assistance. The scholarship exception only applies to tax free scholarship/awards used for qualified education expenses. See page 51 in Publication 970 for the exception discussion.