Education 529 account

[JenMO]

Client started an education 529, this year took out $893.50 which included 15.86 of earnings. He would be ahead to take the Lifetime learning credit on the 877.64 and pay tax and penalty on the 15.86. is this possible? wasn't sure if that is an option? As I understand the pub, the only tax and penalty is on the earnings if not used for education expenses.

[BP.]

First take any education credit applicable, then deal with any taxability of the earnings on the 529 distribution.

See TTB 12-6 and Pub 970 p. 60-61 on exactly how to coordinate the credit and distribution.

If any earnings do wind up taxable, there is no penalty in the case you describe. See TTB 12-7.

[MAJ]

Internet

And paying for the Internet is a deduction for education.
did he pay internet service fees?

can't he deduct the $16 for that??

[JenMO]

I didn't think of that, good thought!

[RitaB]

I've been thinking

I've been thinking the 529s usually just work out for the people with too much income to take Education Credits or take the deduction on line 34. They were really oversold, in my really off the cuff and unsolicited opinion which is worth exactly what you paid for it.