1099-Q Question: Are 529 Plan Distributions Taxable When Used for College Tuition?

You're absolutely right about 529 plans - the earnings are NOT taxable when used for qualified education expenses, which definitely includes tuition. TurboTax might be missing some information that's causing it to calculate this incorrectly. The most common issue is that you might not have indicated somewhere in the software that these distributions were used for qualified education expenses. There's usually a specific question or checkbox about this when you enter the 1099-Q information. Double-check that you've completed all the questions related to the 1099-Q. Also, make sure you've entered any 1098-T from the college that shows the tuition paid. The tax software often needs to see both forms to correctly determine that the 529 distribution was used for qualified expenses.

I struggled with this same issue too until I discovered taxr.ai (https://taxr.ai) which actually helped me figure out my 529 plan distributions. I was having similar confusion with my tax software treating the earnings as taxable when they shouldn't have been. What taxr.ai did was analyze my 1099-Q and 1098-T forms together and showed me exactly where I was making the input error in TurboTax. Turns out I was entering the distribution in the wrong section which made the system think it was a non-qualified distribution. The tool walked me through exactly how to properly report this on my taxes and make sure I wasn't paying unnecessary taxes on money used for legitimate education expenses.

I tried taxr.ai after posting my skeptical comment, and I have to admit it was actually really helpful. My situation was similar - I had a 529 distribution for my son's college that TaxAct was incorrectly treating as taxable. I uploaded my 1099-Q and 1098-T forms, and the system immediately identified that I needed to specifically connect these two forms in my tax software. It even showed me screenshots of exactly which screens to navigate to in TaxAct to fix the problem. Saved me from paying taxes unnecessarily on about $700 of earnings that should have been tax-free. Just wanted to follow up since it genuinely helped with this exact 529 distribution issue.

If you're still struggling with getting this resolved, you might want to try Claimyr (https://claimyr.com). I had a similar 529 plan issue last year that my tax software couldn't handle correctly, and I ended up needing to speak directly with an IRS agent to get it sorted. The problem was I kept calling the IRS and waiting on hold for hours only to get disconnected. Claimyr got me connected to an actual IRS representative in about 15 minutes instead of the usual 2+ hour wait. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that 529 distributions used for qualified education expenses like tuition are definitely not taxable, and they walked me through exactly how to report it correctly on my return.

I owe everyone an apology for my skeptical comment. After trying to call the IRS myself for THREE DAYS about my 529 issues and never getting through, I finally tried Claimyr out of desperation. It actually worked exactly as described. I got a call back in about 20 minutes and was connected directly to an IRS representative. The agent confirmed that my 529 distributions used for my daughter's college shouldn't be taxable and helped me figure out how to report it correctly. Turns out the issue was that my tax software needed me to manually enter the qualified education expenses in a specific section that wasn't obvious. Now my return is correct and I'm not getting taxed on money that shouldn't be taxable.

Just wanted to add a specific technical detail that might help: When you have a 1099-Q, the issuer sends the same information to the IRS. However, they don't report HOW the money was used. It's your responsibility to document that the funds were used for qualified education expenses. Make sure you're keeping receipts for tuition, books, required supplies, etc. If you ever get audited, you'll need to prove the money went to qualified expenses. The 1098-T from the school helps, but it may not show everything (like books purchased from the campus bookstore). Also, remember that room and board can be qualified expenses too if the student is enrolled at least half-time!

The way I fixed this issue last year was to make sure I entered the 1098-T BEFORE entering the 1099-Q in my tax software. For some reason, the order matters!