Student with a 1099R

[dmj4]

A college student received a 1099R for $3200 that has a penalty and is not an IRA. It notates nothing regarding education. Can the student claim the 1099R income, kiddie tax and penalty while parents take the education credit, if they claim him as a dependent?

The parent thinks the 1099R has to do with education, but it appears as if it was not in a true education plan, jut money put in for education.

Thanks!

[ChEAr$]

A college student received a 1099R for $3200 that has a penalty and is not an IRA. It notates nothing regarding education. Can the student claim the 1099R income, kiddie tax and penalty while parents take the education credit, if they claim him as a dependent?

The parent thinks the 1099R has to do with education, but it appears as if it was not in a true education plan, jut money put in for education.

Thanks!

You almost confused me when you said something about ... "can student claim.... penalty...?

If child did not make over the 3650 and files own return, the only thing to be paid is
the $320 penalty. The words "kiddie tax" don't even enter into this discussion.

Of course the parents get the education credits, if any.

As an aside, ain't those new fangled American opportunity credits just great?
Yesterday, parents with two girls in college collected an extra $ 5,000.

[Koss]

Wait a minute...

I agree that in general, the kiddie tax would not be applicable, unless the parents are making an astronomical amount of money.

I also agree that in most cases, the distribution from the retirement plan, in and of itself, will not disqualify the parents from claiming the child as a dependent. If they claim the child as a dependent, then they also get the benefit of any education credit that may be applicable. This is true regardless of who actually paid the tuition. The tuition could have been paid by the parents, by the child using student loan proceeds, by the grandparents, or almost anyone.

However...

According to the original post, the funds were not in an IRA, and it also was not a "true education plan."

Well, then, what was it??

If it was an IRA, then that changes things a little bit. Qualified education expenses are one of the many exceptions to the 10% penalty for premature distributions. The distribution would still be taxable, but it would not be subject to the penalty to the extent that the child had qualified education expenses. But using that exception will reduce the amount of education expenses that can be used by the parents to claim the education credit.

If it wasn't an IRA, and it wasn't a Coverdell ESA, then... why has the distribution been reported on Form 1099-R?

Something doesn't add up here.

Was it a Roth IRA?

If it was, then only the earnings are taxable, and only the earnings are subject to the 10% penalty... and the penalty can still be avoided if there were qualified education expenses.

Was the college student working at one time? As in, really working? Is this a distribution from a 401(k)? Or is it some sort of annuity? Or...

Form 1099-R cannot arise in a vacuum...

My final observation is:

At least in theory, the distribution could call into question whether the college student is still a qualifying child of the parents. It's probably not an issue. But it depends on all the facts and circumstances. The issue is not whether the child made more than $3650. Rather, the question that arises is whether the child provided more than half of his own support. The distribution could change the answer to this question.

BMK

[Peachie]

Yes, it is a great credit.

As an aside, ain't those new fangled American opportunity credits just great?
Yesterday, parents with two girls in college collected an extra $ 5,000.

I had the exact same thing happen yesterday as well. Husband must have seen it coming as he had no imcome tax withheld from his pay. His hours were cut last year and they needed all of the income they could get. This worked beautifully for this family.

[dmj4]

1099R is Investment Income

Are you saying the 1099R income is not considered investment income?

Below is copied and pasted from Instruction for from 8615.

For Form 8615, “investment income”
includes all taxable income other than
earned income as defined on this page.
Investment income includes taxable
interest, ordinary dividends, capital
gains (including capital gain
distributions), rents, royalties, etc. It
also includes taxable social security
benefits, pension and annuity income,
and income (other than earned income)
received as the beneficiary of a trust.

He had no earned income in 2009 and has never had any earned income. He did not put money into a pension at any time.

He does not provide half his own support.

The 1099R is not marked as an IRA or a Roth.

My software agrees that it is investment income, loads the 8615 and gives the $950 as his standard deduction.

Thanks!

[Kram BergGold]

Correct

DMJ4 is correct. Kiddie tax applies to 1099 R income.

[ChEAr$]

DMJ4 is correct. Kiddie tax applies to 1099 R income.

yes, I see that now in TTB, page 12-10. However one doesn't usually thing of income on a
1099R being investment income. Usually it's a pension, retirement fund distribution or the like. However it could be from a purchased annuity outside of a retirement plan, and in that
case I would think of it as investment income, but only in that case.

Oh well.

[Burke]

I kinda agree with you Chears. Instructions to the contrary, I fail to see how Social Security benefits can be labeled "investment income." It just looks like they threw all these other things into that category for the sake of 8615.

[gkaiseril]

Has the source or the reason why the child has received this 1099-R been clarified?

Was it money put in by the parents? Grandparents? Aunts or Uncles? The child?

What type of deferred plan was this?

Is the 1099-R correctly coded?.
Maybe it is an inherited Roth IRA and the custodian miscoded the distribution.

Is this an RMD or total payment from a deceased relatives deferred pension or other plan?
The child being named as a beneficiary of a 401(k) type plan with the intention that the funds could be used for eduction does not change the taxable nature of the funds.

Without knowing if the facts will allow for an exception, you are stuck with the letter of the law.

[Edsel]

Also EIC

I kinda agree with you Chears. Instructions to the contrary, I fail to see how Social Security benefits can be labeled "investment income." It just looks like they threw all these other things into that category for the sake of 8615.

Also SS messes up EIC if investment income and > $2400. There is an age limit of 65 for earned income to qualify with no child, but I have a few people in the age range who are supporting their grandchilderns.

[ChEAr$]

What I found out today is if investment income is less than 3200$, EIC is possible
for a couple. And yes, both draw social security.