Daughters taxes and 529

[runwad]

So we are working on DD taxes. We have a 529 plan that we the parents own, and DD is the beneficiary. Looks like the distribution that was made is added to her income? Is that right? She's 20, only made 5800 last year, had 163 taking out in federal taxes yet she is only getting $70 of that back. Is that right? I guess I didn't realize the distributions would affect her come tax time. Can anyone confirm? Thanks

 

[runwad]

Forget it, I answered a question wrong. I fixed it and we're back to getting the full refund. Thanks anyway.

I'd still like someone's input I'm not sure I"m doing this right. The 529 money went directly to the school. I'm getting stuck on how to answer this question:

Distribution Transfer
Did you roll over or transfer all or part of this distribution $x.xx within 60 days to another qualified tuition program?

^if I say yes she gets back all her federal withdrawal, if I say no she loses some. What is the right answer? I'm confused :-(

Why I'm confuse is last year she had hardly any income and still there was a 529 withdrawal but she got all her withholding back. Maybe because of her small income? I just want to make sure I am doing this right. Thanks

 

[mimi1016]

If the money went to the school then I would answer yes.

 

[Psychodisney]

I think as long as the 529 $ was used for qualified expenses, you're all good.

 

[runwad]

If I say yes then it asks me who the new beneficiary is for the account: 1. Daughter 2. Family Member 3. Someone else. SO yes is not right.

If I say no it asks if I got a refund for a dropped class or other higher qualified expense.

I think my 1099-q form is wrong the Recipient should be the UNIVERSITY not my Daughter. We did not get the money the college did.

 

[mimi1016]

If the distribution amount isn't higher than her qualifying expenses she doesn't have to report it as income. The 1099-Q is correct because technically she did get the money since she, not the school, is the beneficiary. The money then went to the school to pay for an expense. If the amount was higher than her expenses then it gets reported under other income.

The reason that it's asking you who a new beneficiary is is because it's asking you if you rolled over a part of any or all of the distribution to a new tuition program. Meaning a new 529 or coverdell. You did not.


Since you used the money for school expense and assuming you didn't take out more than her total expenses you don't need to report it at all. Hope that helps.

 

[mimi1016]

Also, her total expenses are minus any tax free educational assistance like pell grants.

Say her expenses were 10,000 and she paid 9,000 out of the 529 and 1,000 out of a grant or tax free scholarship.

You divide her total adjusted expenses (9k) by the amount of the distribution (9k) and multiply it by the amount of the distribution (9k). Then you subtract that from the total earnings (let's assume 1k is earnings on box 2) . the result (0 in this example)is what she must include in her income.

 

[mimi1016]

From the irs website....just plug your own numbers in
:

1. Multiply the total distributed earnings shown on Form 1099-Q, box 2, by a fraction. The numerator is the adjusted qualified education expenses paid during the year and the denominator is the total amount distributed during the year.
   
   
2. Subtract the amount figured in (1) from the total distributed earnings. The result is the amount the beneficiary must include in income. Report it on Form 1040 or Form 1040NR, line 21.
   

 

[HM]

Our 529 money is used against our taxes, not the child's taxes. I think you are doing it wrong.

 

[mimi1016]

OP re-reading your original post...since she didn't make more than 6500 she doesn't have to file a return and the 1099-Q, like PP said, would go on your taxes using the math breakdown above.