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Client took a Section 529 distribution (Form 1099-Q) but took too much out...

Level 5

My client has two kids...he took a Section distribution for each child. For his son, he withdrew enough Section 529 funds to cover his tuition and room and board. So he's all set there.

For the daughter, he withdrew $50,000....but the tuition shown on Form 1098-T as well as room/board were only $40,000. The tuition reported on the 2019 IRS Form 1098-T doesn't match his actual payments because the college is checking the box to report the Jan-March 2020 tuition payments. (They did the same thing for the 2018 Form 1098-T). He just took his actual payments made in 2019 and withdrew those funds from the Section 529 plan.  

How do I correctly report the excess $10,000 on the return? If I use the tuition shown on Form 1098-T as well as room and board....I'm showing that he took too much out ($10,000) and is subject to a penalty and must also pay tax on the excess withdrawal.


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3 Replies 3
Level 15

Cash basis taxpayer - report what was actually paid in 2019.

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
Level 11
Level 11

Remember the principle in a 529 is never taxed or penalized, only the earnings not used for qualified education expenses 

Level 4

Terry is correct at the federal level, however if your state allowed a deduction for contributions put into a 529 plan and you do not use for education, you must recapture on the state.  I know that Iowa, Arizona,and Wisconsin are that way, so am sure there are other states that allow  deductions for contributions also.