529 Account distributions and completing tax forms

ptony101
Sun, 13 Mar 2011 15:32:34 +0000

Great thread and great info by all. I spent HOURS trying to make sense of all the different rules and regs this year and how they applied to me. My conclusion: this is crazy complicated. 529 rules are tough enough but when you try to balance that with any of the various tax breaks, fuggeddaboudit!

FWIW, my $0.02…

I’ve also never found the correct way to claim a 1099Q that was used for qualified expenses. It seems you shouldn’t have to and I assumed that the IRS would “see” a 1098T for the same year and offset them. However, as did FerrisH, I got a letter from the IRS last year for my 2008 return saying I owed additional taxes for a 529 distribution. In my case, i just sent them a letter and copies of relevant 1098T’s and they dropped the matter right away. Probably better not to have an inquiry, but it was no big deal in the end.

As Swimcatsmom noted, you don’t have to pay a 10% penalty if you had an excess 529 distribution that was ONLY the result of taking a tuition tax credit. You will have to pay a little bit more in income tax, however (but only on a portion of the gain used to pay those expenses). How you calculate this is covered in Pub 970. From what I could see, you would still save a lot from taking the credit in these cases so don’t pass it up.