1099q

[Snaggletooth]

Taxpayer is 28 yrs old and working on his Masters. Endorsed a section 529 plan for some $4900 over to Emory University. Over the years his contributions were $4100, the "plan" thus earned some $800 over the years. I'm thinking we should have the option of reporting $800 as income.

Reading in the TTB, 12-4 and 12-5, I do not see where I have this option. There is a 1099T for $12000 (and this was only from September forward! Yikes!!). The entire proceeds is to be deducted from the 1099T, meaning the amount usable from the 1099T is only $7,100.
Since he is in the 15% tax bracket, he would be better off reporting the $800 as income, and using the entire $12000 from the 1099T (although not all of this amount would qualify for a credit).

Can we not do this?

[BP.]

Here goes

Ron, it's a bit late for me here, but I'm going to give this a go for you. Forgive me if my math is a bit off; check my figures, and also refer to the formula in pub 970, ch. 8. Plus I'm going to try to fill in some gaps in my understanding of your post. Starting with the tuition from the 1098-T- that's $12,000. Sounds like you want to use $10,000 for the Lifetime Learning Credit, so go ahead and do that. This now leaves you with $2,000 remaining in tuition paid. The 1099-Q distribution of $4,900 pays that and leaves some leftover. You do not have to report all of the $800 in earnings as taxable, just a prorated portion. The formula is $800 x ($2,000/$4,900) as a tax free distribution, and the remainder of about $473 in earnings as taxable and reported as "1099-Q" on line 21.

[Snaggletooth]

Thanks

BP this is a very good, illustrative, and relevant response. Thanks a bunch at this late hour and late date.

Regards, Ron Jordan