529 distribution (1099Q) on parent or child's tax return?

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desiderium
Posts: 716
Joined: Sat Jan 04, 2014 11:08 am

529 distribution (1099Q) on parent or child's tax return?

Post by desiderium » Mon Feb 12, 2018 9:42 am

Please help with this scenario:

529 distribution to pay for college expenses in 2017. 529 owner was an educational trust in my daughter's name (set up by a relative), distributed directly to my daughter.

Daughter is in college, financially dependent on me, but no tax deduction for me because of income phase-out

Daughter's own earned and unearned income in 2017 were below taxation thresholds.

Should my daughter file a tax return, to report 1099q, 1098t etc to stay ahead of any IRS questions?
Alternatively, should I report all this on my tax return?

Thanks for your input

miamivice
Posts: 961
Joined: Tue Jun 11, 2013 11:46 am

Re: 529 distribution (1099Q) on parent or child's tax return?

Post by miamivice » Mon Feb 12, 2018 9:44 am

dleted
Last edited by miamivice on Mon Feb 12, 2018 10:50 am, edited 1 time in total.

Spirit Rider
Posts: 8916
Joined: Fri Mar 02, 2007 2:39 pm

Re: 529 distribution (1099Q) on parent or child's tax return?

Post by Spirit Rider » Mon Feb 12, 2018 10:41 am

Any 1099-Q tax reporting is based on the destination of the funds. Only distributions to the owner are reported for the owner. Distributions to the beneficiary or direct payments to the school, off-campus housing, etc.. are reported for the beneficiary.

Forms 1098-T and 1098-E are reported for the student.

Any non-qualified distributions are reported on the Form 1040 of whoever receives the 1099-Q. While some tax software asks you to enter distributions and qualified expenses, nothing is reported unless there are non-qualified distributions (distributions > qualified expenses).

If there are non-qualified distributions. The earnings are taxable income reported on Form 1040 and Form 5329. If the 10% penalty is applicable it is reported on Form 1040.

This why if you have excess 529 funds you want to distribute. It might be better to distribute to the beneficiary. They may be in a lower tax bracket, have no tax liability and even non-refundable tax credits to consume.

desiderium
Posts: 716
Joined: Sat Jan 04, 2014 11:08 am

Re: 529 distribution (1099Q) on parent or child's tax return?

Post by desiderium » Mon Feb 12, 2018 10:04 pm

Spirit Rider wrote:
Mon Feb 12, 2018 10:41 am
Any 1099-Q tax reporting is based on the destination of the funds. Only distributions to the owner are reported for the owner. Distributions to the beneficiary or direct payments to the school, off-campus housing, etc.. are reported for the beneficiary.

Forms 1098-T and 1098-E are reported for the student.

Any non-qualified distributions are reported on the Form 1040 of whoever receives the 1099-Q. While some tax software asks you to enter distributions and qualified expenses, nothing is reported unless there are non-qualified distributions (distributions > qualified expenses).

If there are non-qualified distributions. The earnings are taxable income reported on Form 1040 and Form 5329. If the 10% penalty is applicable it is reported on Form 1040.

This why if you have excess 529 funds you want to distribute. It might be better to distribute to the beneficiary. They may be in a lower tax bracket, have no tax liability and even non-refundable tax credits to consume.
Thanks! This makes complete sense; there is nothing to report in this case.

lstone19
Posts: 167
Joined: Fri Nov 03, 2017 3:33 pm

Re: 529 distribution (1099Q) on parent or child's tax return?

Post by lstone19 » Mon Feb 12, 2018 10:16 pm

Out situation was similar to the OP’s - income too high for any education credits or deductions. TurboTax acts as if all must be “reported” on the parent’s return and “yells” at you if you try to enter it on the student’s (but accepts it). But when there’s no deduction, credit, or non-qualified income, nothing shows up on anything that goes to the IRS (but useful to have it in TT’s worksheets should the information be needed. Thanks to my son earning a full-tuition scholarship, the 529 was overfunded so excess was distributed to him and taxed at his rate (no 10% penalty as any excess due to a scholarship is except from the penalty).

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