529 Account distributions and completing tax forms

IDoItMyself
Sun, 16 Jan 2011 11:55:43 +0000

Our daughter’s 529 account has the ability to pay directly to the college, so we don’t have to worry about paying first from our account and then being reimbursed. When we got the first 1099Q in our daughter’s name, it stated the amount that had been paid out. So far so good. Then the college sent us a 1098-T called a Tuition statement and showed the amount received for qualified tuition and related expenses. It did NOT include the amount paid for the residence and dining. However, I knew because of publication 970 that the 529 funds can pay for housing and dining, especially when it is through the university and easy to verify the amounts.
We don’t use turbotax and just blunder through the process on our own. I noticed some of these other posts talk about reporting on the parents tax form, but that is not our interpretation. Since the 1099Q was reported in my daughter’s name and her SSN, we figured it went on her tax form somewhere, not ours, since none of our 529 statements have our SSN on them. After pondering several instructions, we decided it belonged on 1040 line 21, other income, and we report 0 but also wrote “see enclosed note.” The enclosed note listed the college statements we had received showing residence hall charges along with tuition. We then showed how the math worked out between what the 529 paid, and all of these qualified expenses, leading to 0 other income.
We included this note and supportive tuition statements with our daughter’s tax return to prevent any audits (hopefully).
We first did this for tax year 2008 and have had no inquiry so far from the IRS.