529 DISTRIBUTION

[michaelmars]

client took money out of 529 plan i and i know box 2 goes on line 21 but how do i offset it with the tuition expense he paid to get it to be not taxable?, where does the 1099-q get entered?

[Maribeth]

client took money out of 529 plan i and i know box 2 goes on line 21 but how do i offset it with the tuition expense he paid to get it to be not taxable?, where does the 1099-q get entered?

Mike, the 1099-Q doesn't go anywhere. You compare the tuition paid with the amount out of the 529 plan. As long as the tuition is equal to or more than the total distribution from the 529 plan, then nothing needs to be reported.

However, I always look at taking the income on the child's return and the education credit on the parent's return. In my experience, that is always the most beneficial way to go.

Maribeth

[LindaB]

Mike, the 1099-Q doesn't go anywhere. You compare the tuition paid with the amount out of the 529 plan. As long as the tuition is equal to or more than the total distribution from the 529 plan, then nothing needs to be reported.

Qualified expenses also include, besides tuition, fees, books, supplies, equipment, and reasonable costs of room and board.

[michaelmars]

if nothing is reported why take income on kids return?

[Lion EA]

take income at the kid's lower rate and use the education credit or deduction against the parents' higher rate income

[michaelmars]

i don't get it, my reading is if all is spent on education even the income isn't picked up, am i wrong?

[LindaB]

i don't get it, my reading is if all is spent on education even the income isn't picked up, am i wrong?

If you use a tax free distribution from this plan to offset tuition, then you can't use the tuition for the Hope or Lifetime Learning credit. I think Lion is saying that the parents might be better off to take one of the credits, and let the child report the income on his/her tax return. (The student should be the beneficiary of the 529 plan)

[Maribeth]

If you use a tax free distribution from this plan to offset tuition, then you can't use the tuition for the Hope or Lifetime Learning credit. I think Lion is saying that the parents might be better off to take one of the credits, and let the child report the income on his/her tax return. (The student should be the beneficiary of the 529 plan)

A simple example. Distribution from 529 plan is $5,000, 4750 basis & 250 earnings. Tuition is $5,000. Parents take the $5000 on their return for the Lifetime or Hope credit. The student has 250 of taxable income. Usually won't have any tax associated with the income and the parents will get a definite tax break.

Maribeth

[michaelmars]

ok but my numbers are distribution of 15000 13000 basis & 2000 int. tuition of 30,000 so if i am right everything is over the limits anyway and i should just forget reporting it anywhere. Am i right?

also there is no credit available parents income is over $500,000

[Maribeth]

ok but my numbers are distribution of 15000 13000 basis & 2000 int. tuition of 30,000 so if i am right everything is over the limits anyway and i should just forget reporting it anywhere. Am i right?

also there is no credit available parents income is over $500,000

That's correct. Nothing to report, tuition is greater than the distribution, no credit to the parents. You have some great clients out there on Long Island, Mike.

Maribeth

[michaelmars]

THANKS AND thanks for you patient help on this very busy night, my trans just went through so i am going home, as mickey said to rocky - just one more round - see you all tomorrow