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Tax Question regarding 529 distribution
Old 02-18-2015, 10:34 AM   #1
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Tax Question regarding 529 distribution

I have a tax question (maybe the first of many to come ) which I would appreciate some input on.

Our first DS started college in the fall of 2014.

We have several different college savings accounts - one of which is a 529.

For better or worse (based on web info on pros & cons) DW requested a 529 distribution made payable to her, which she then paid to the college for tuition and on-campus room and board.

We have received the 529 tax form, 1099-Q, which shows the distribution amounts - all used for qualified expenses.

Since she received the distributions - do we need to include 'proof' in our tax return, that the proceeds were then used for qualified expenses so as to avoid possible penalties (say that we didn't use the money for a boat, for example)?
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Old 02-18-2015, 10:55 AM   #2
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Might be an answer here:
3 Ways to Take a 529 Plan Distribution
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Old 02-18-2015, 11:18 AM   #3
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Per the link
"The account owner now has to respond to the IRS and justify the exclusion of earnings."

Still not clear on what 'respond' means....copies of credit card statements and checks that show that what was received was paid to the college - and is that includes 'someplace' in our return?

For this year, we are still using a CPA to do our 2014 return, but I'm also 'following along' with Turbo Tax Premier. How does one include 'auxiliary' documentation with an e-filed return?
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Old 02-18-2015, 11:26 AM   #4
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Originally Posted by BBQ-Nut View Post
Per the link
"The account owner now has to respond to the IRS and justify the exclusion of earnings."

Still not clear on what 'respond' means....copies of credit card statements and checks that show that what was received was paid to the college - and is that includes 'someplace' in our return?

For this year, we are still using a CPA to do our 2014 return, but I'm also 'following along' with Turbo Tax Premier. How does one include 'auxiliary' documentation with an e-filed return?

Just read the link... if you read it again it say the IRS will contact you since nothing was on your tax return... so no documentation is required when you e-file....
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Old 02-18-2015, 11:29 AM   #5
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Just read the link... if you read it again it say the IRS will contact you since nothing was on your tax return... so no documentation is required when you e-file....
As in an 'audit'??
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Old 02-18-2015, 11:41 AM   #6
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As in an 'audit'??
Please don't make too much of an issue of this. 529 distributions are like any other item on your tax forms - self-reported but subject to IRS verification via an audit. The real question is whether the 529 distribution itself will increase your likelihood of being audited. This will be the fifth year that I've had 529 distributions and have yet to be audited because of it. It doesn't prove that I never will be, just that the 529 distribution doesn't automatically red-flag a return as needing an audit.

Keep your receipts for the college costs, just as you would for charitable contributions, and you should be just fine, audit or no audit.
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Old 02-18-2015, 12:06 PM   #7
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As in an 'audit'??
You could call it that... but I would not... it is the same as if you forgot to put down a 1099 on your return... a letter asking for more info... heck, it probably is done by a computer and nothing else on your return is looked at unless you left something else off or you are making some strange claims...
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Old 02-18-2015, 12:39 PM   #8
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You really should have no worries, but s/he should have a 1098-T. It doesn't really matter who paid what or who got what as long as you declare him/her is a dependent on your tax return which I expect you will do.

The 1099-Q comes from the 529 plan. The 1098-T comes from the college. The 529 money can also be spent on things not on the 1098-T such as off-campus room & board. Also note that the 529 withdrawal really has 2 parts: The contribution and the gain. (Hopefully you have gain!) The gain is tax-free if spent on qualified higher education expenses including room & board and books. The contribution can be used to get the American Opportunity Tax Credit if your AGI is below $180K and it was spent on tuition.

IF you use tax software such as TurboTax, it will do mostly the right thing, but you may need to decide how much of the 529 money to use for the AOTC since sometimes it is better to get the AOTC and pay a 529 penalty than it is to not pay a 529 penalty. Of course, it is probably best to get the AOTC and the 529 plan gains tax-free without penalty.

For more info, please read and STUDY Publication 970.
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Old 02-18-2015, 12:58 PM   #9
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This is causing pain. LOL.

Just went through 5 years of previous years' tax returns to find what education credits were taken.

Your tax software probably steps you through the 1099-Q. After completing all of the questions, open up the education worksheet and add additional information to the box. Double-click usually gets it done. The supporting details you add are saved with your copy of the taxes filed.

I add in check no., when received, what tuition bill did I apply it to, etc.

We probably pulled three checks as I recall from the 529. Maybe 1 or 2 were made out to the school. 1 or 2 were made out to us, and we documented how it was spent.

Some day we may get a question for more information, and I have enough documentation to prove the money was use as it should be.
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Old 02-18-2015, 01:03 PM   #10
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You really should have no worries, but s/he should have a 1098-T. It doesn't really matter who paid what or who got what as long as you declare him/her is a dependent on your tax return which I expect you will do.

The 1099-Q comes from the 529 plan. The 1098-T comes from the college. The 529 money can also be spent on things not on the 1098-T such as off-campus room & board. Also note that the 529 withdrawal really has 2 parts: The contribution and the gain. (Hopefully you have gain!) The gain is tax-free if spent on qualified higher education expenses including room & board and books. The contribution can be used to get the American Opportunity Tax Credit if your AGI is below $180K and it was spent on tuition.

IF you use tax software such as TurboTax, it will do mostly the right thing, but you may need to decide how much of the 529 money to use for the AOTC since sometimes it is better to get the AOTC and pay a 529 penalty than it is to not pay a 529 penalty. Of course, it is probably best to get the AOTC and the 529 plan gains tax-free without penalty.

For more info, please read and STUDY Publication 970.
Thanks for the boost of confidence - it is appreciated.


We have not received, nor has our son (or...has he...) received a 1098-T.

Unfortunately, for 2014 our AGI is too high and the AOTC is phased out - we get nada - nothin'.

I am/was concerned about the 1099-Q which would alert a 529 distribution and any resultant need to prove that 100% was used for qualified educational expenses.

{will keep head low and fly low under the audit radar}
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Old 02-18-2015, 02:44 PM   #11
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I always have to ask my kids to find and send me their 1098-T. The colleges my kids attended just make it available online via the student's university account to which I have no access. Same with report cards, uh, I mean grades.
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Old 02-18-2015, 03:29 PM   #12
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We have 529 accounts both with a broker and direct with the state plan-both with the same state plan. One sends the 1099 with my info on it, and one send it with our kids' info. Totally inconsistent. I've asked, and both have said that's how they do it. However, kids are junior and senior and we have never had a question about this.
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Old 02-18-2015, 03:46 PM   #13
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We have 529 accounts both with a broker and direct with the state plan-both with the same state plan. One sends the 1099 with my info on it, and one send it with our kids' info. Totally inconsistent. I've asked, and both have said that's how they do it. However, kids are junior and senior and we have never had a question about this.
How are the proceeds distributed?

To you, directly to the school, to your kids?


Oh - called the school about the 1098-T forms - they were mailed to the students in January. My DS has not bothered to check his mail in weeks...I had to call him just now to ask him to look for it.
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Old 02-20-2015, 09:07 AM   #14
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How are the proceeds distributed?

To you, directly to the school, to your kids?


Oh - called the school about the 1098-T forms - they were mailed to the students in January. My DS has not bothered to check his mail in weeks...I had to call him just now to ask him to look for it.
Checks mailed to me from the one that sends the 1099s in the kids' names, and ACH transfers to my account from the one that sends the 1099s in my name. Odd, isn't it?
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