Quick TaxAct question

[ocowner]

We're using TaxAct again this year. I believe everything is entered correctly, though I see some lines on the "view only" pdf that have me wondering if things are correct.

First, line 21 "other income" includes the amount of earnings (not basis) from a 529 plan distribution. Is this normal, and does it actually get calculated into the AGI? The distribution was used for qualified college expenses, so I'm not sure why it shows up there.

Second, line 60 "other taxes" has a small amount that is 10% of the line 21 amount. I'm under the assumption that this may have calculated a 10% penalty on line 21. Has anyone else ever experienced this?

 

[Mel]

I am not familiar with Tax Act, so I can't tell you how to fix this.

You already paid the tax on the 529 plan when the money was put there (though you probably had a deduction on your state taxes). The only portion that might be taxable is the portion that was earnings, and those are not taxable if used for qualified educational expenses.

You also should charged the 10% penalty.

Does your software have a place for you to list your educational expenses (such as those reported on a 1098-T? That would be a good place to start.

The easiest way to avoid the issue of dealing with a 1099-Q is to have the distribution sent directly to the school. See if you can have that done next time.

 

[zinger1457]

You would only have to pay taxes and a 10% penalty on 529 plan distributions if withdrawals were made for non-eligible college expenses. I would go back to where you entered the 1099-Q information and make sure you correctly answered any education expenses questions to show that the withdrawals were for qualified expenses.