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1099Q and 529 Distribution

Iron MaidenIron Maiden Posts: 1,838Registered User Senior Member
I'm using TaxCut 2008 and can't figure out how (or if I should) enter the information I got on a 1099Q from my son's 529 plan.

The check was cut to me for the exact amount of the 2nd semester room and board. I then wrote a check to the school for the same amount. As I understand then the distribution earnings are not taxable.

So I just don't report this on 1040 line 21? I would only report the amount if it was taxable?

TaxCut does not address this at all.
Post edited by Iron Maiden on
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Replies to: 1099Q and 529 Distribution

  • swimcatsmomswimcatsmom Posts: 14,999Registered User Senior Member
    You don't report it at all if it was used for qualified education expenses. Just make sure you file it and copies of college expenses with your tax papers.
  • Iron MaidenIron Maiden Posts: 1,838Registered User Senior Member
    That's what I thought. But won't that trigger an audit?
  • mamabear1234mamabear1234 Posts: 3,026Registered User Senior Member
    Iron Maiden, this is our first year doing this too, so I am wondering how it will all go also. Got our 1098 from the school today; hadn't realized there was no place to at least separately list room & board expenses paid. So the 1099Q lists a bigger withdrawal than the tuition and fees expenses listed, but I am going to keep meticulous records of everything paid and hope the IRS is used to seeing this and it won't seem unusual.
  • swimcatsmomswimcatsmom Posts: 14,999Registered User Senior Member
    No it won't trigger an audit. Not all 1099s have to be reported on tax returns. Here is the link to IRS 970 which has all the education tax credit information

    http://www.irs.gov/pub/irs-pdf/p970.pdf

    The section about 529 accounts starts on page 54. Take some time to read through the whole thing (could be an insomnia cure) to make sure there are not any other education tax benefits your program is not telling you about.
  • vonlostvonlost Posts: 13,745Super Moderator Senior Member
    "That's what I thought. But won't that trigger an audit?"

    For us it triggered a question from the IRS, but not an audit. I just sent documentation that the money was for college expenses, and they were happy. :)
  • heyalbheyalb Posts: 956Registered User Member
    I believe it's always best to have the institution holding the 529 cut the check directly to the school. Then there's no question from the IRS.

    It's sort of like an IRA rollover; if you poise yourself as the middle man rather than a direct (institution-to-institution) transfer, it raises questions.
  • Iron MaidenIron Maiden Posts: 1,838Registered User Senior Member
    Unfortunately I was not given the option to do that.
  • vonlostvonlost Posts: 13,745Super Moderator Senior Member
    ^ We also could not (!@#$% bureaucracy), but would have much preferred it that way!
  • heyalbheyalb Posts: 956Registered User Member
    Unfortunately I was not given the option to do that.
    ^ We also could not (!@#$% bureaucracy), but would have much preferred it that way!

    I was under the impression that 529 sponsors/holding institutions preferred to send the check directly to the school. My high school seniors obviously aren't there yet, but when I checked on the procedure, they told me this is what they preferred.

    It must be different for every sponsor/holding institution.
  • vonlostvonlost Posts: 13,745Super Moderator Senior Member
    For us, it wasn't the 529 sponsors, but our schools' monthly payment options that didn't have the flexibility to accept payment from the 529.
  • heyalbheyalb Posts: 956Registered User Member
    ^ Ah, so. Thanks for the clarification, vossron.
  • kgs914kgs914 Posts: 2Registered User New Member
    First, thanks everyone for all the previous posts on this issue. This post is more of a venting, but all comments very welcome.

    I had a problem entering 1099Q info using Turbo Tax. Since I (the parent) was the recipient of the distribution and my son was the beneficiary, Turbo Tax asked for the beneficiary SSN, but as soon as I entered it, it immediately increased my taxes owed by approx $2500 due to investment income that was part of the distribution amount. I would have expected Turbo Tax to link my son's SSN back to the 1098T statement from his university to see that the numbers, etc. were all valid. I finally just decided to leave the SSN blank, but then Turbo Tax wouldn't allow me to file electronically, so I will have to mail in my return. This seems to me to be a bug in Turbo Tax, or am I missing something somewhere? I have all the documentation/validation as far as the numbers checking out etc. Also, Turbo Tax printed out my 1098T info from the University, but omitted my 1099Q info. Do I need to print/attach the 1099Q info to my return?
    Thanks, Ken
  • swimcatsmomswimcatsmom Posts: 14,999Registered User Senior Member
    We had the same problem with Turbotax this year and last as our State 529 account only gives us the option of the check being made out to the school or us, not the student for whom the account is set up. Turbo tax tried to make it taxable income. I ended up omitting it from turbo tax. If I were ever audited I have the form and the expenses all on file to support that the withdrawal was for qualified expenses.

    My understanding is that 1099Q is one of those forms that 'may' have to be reported on a tax return - if none of the distribution is taxable it does not have to be reported. If you were doing your tax return manually you would not enter it anywhere. From the 1040 instructions page 28

    http://www.irs.gov/pub/irs-pdf/i1040gi.pdf
    • Taxable distributions from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). Distribu-
    tions from these accounts may be taxable if (a) they are more than the qualified higher education expenses of the designated bene-
    ficiary in 2008, and (b) they were not included in a qualified rollover. See Pub. 970. Nontaxable distributions from these ac-
    counts, including rollovers, do not have to be reported on Form 1040.

    To be honest I find Turbotax is not very complete or accurate as far as helping figure education related tax benefits, so make sure you read IRS 970 and check on the IRS web site and 1040 instructions to make sure you are getting the correct benefits.
  • kgs914kgs914 Posts: 2Registered User New Member
    Thanks swimcatsmom, your comments are very helpful !!
  • vonlostvonlost Posts: 13,745Super Moderator Senior Member
    http://www.irs.gov/pub/irs-pdf/f1099q_08.pdf says:
    Generally, amounts distributed are included in income unless they are
    used to pay for qualified education expenses, transferred between
    trustees, or rolled over to another qualified education program within 60
    days. Report taxable amounts as “Other Income” on Form 1040.
    So if the withdrawals are used for college, they are not to be reported on our tax returns, be we still might get a letter from the IRS (we did) asking for the relevant info.

    I agree that TurboTax could be a lot more helpful in this area.
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