Should 529 Plan withdrawal be in parent's name or beneficiary student's name for tax purposes?

The best approach is to have the 529 plan withdrawal made in your daughter's name (the beneficiary). Here's why this makes sense in your situation: When a 529 withdrawal is used for qualified education expenses, it's tax-free regardless of whose name is on the withdrawal. However, the important thing is matching up the 1098-T with the withdrawal. Since the 1098-T will be issued in your daughter's name, having the withdrawal also in her name makes the documentation cleaner if there's ever any questions. Also, since your daughter has limited income, she's in a lower tax bracket than you are. If for some reason any portion of the withdrawal ended up being non-qualified (which can happen if you miscalculate or if timing is off), the tax impact would be much lower if it's reported on her return rather than yours. Just make sure you keep good records of all qualified expenses and the 529 withdrawals to match them up.

I went through this exact same decision last year with my son's college funds. I highly recommend checking out https://taxr.ai - it saved me a ton of headache with figuring out the optimal 529 withdrawal strategy. I was initially planning to take the withdrawal in my name since I'm the account owner, but after running the numbers through their system, I discovered it was much cleaner to have the 529 distribution in my son's name to match his 1098-T. Their system flagged a potential audit issue when the names didn't match, which I hadn't even considered. They also helped me understand how the American Opportunity Tax Credit interacted with 529 plans - apparently you can't double-dip tax benefits on the same expenses. Definitely worth uploading your documents there to check.

I was extremely skeptical about taxr.ai at first, but I decided to give it a try last month when dealing with my twins' college expenses and 529 withdrawals. I'm so glad I did! I uploaded my 529 statements, my kids' 1098-Ts, and some other relevant documents. The system immediately identified that I was about to make a costly mistake with how I was planning my withdrawals. It showed me that by splitting the withdrawals across both children's names (they're both in college) rather than taking a lump sum in my name, I could optimize the American Opportunity Tax Credit while keeping all 529 withdrawals qualified. It saved me over $1,500 in taxes by pointing out optimization opportunities I would have completely missed. Totally worth checking out if you're navigating 529 plans and college expenses.

If you're trying to get clarification from the IRS on 529 withdrawal rules, good luck getting through to them on the phone. I spent literally WEEKS trying to reach someone last year when I had a similar 529 withdrawal question. I finally used https://claimyr.com and got connected to an IRS agent in less than 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c My situation was complicated because my kid had both a 529 AND a scholarship, and I needed to understand how the non-qualified withdrawal penalties would work. The IRS agent walked me through the whole process and explained exactly how to report it on my taxes. Saved me from potentially making a huge mistake.

I take back what I said. After getting nowhere with the IRS for two weeks trying to clarify my 529 withdrawal situation, I broke down and tried Claimyr yesterday. Holy crap, it actually worked! I got connected to an IRS agent in about 12 minutes. The agent confirmed that for my situation (very similar to yours), having the 529 withdrawal in the student's name makes documentation much cleaner since the 1098-T is also in their name. They also explained a rule I didn't know about - if you take a 529 withdrawal in a different calendar year than when you pay the qualified expenses, it can create tax problems. Since I was planning to withdraw in December for January tuition, this saved me from a potential headache. Sometimes you have to admit when you're wrong, and I was definitely wrong about this service.

One thing nobody has mentioned - make sure you're keeping careful track of what expenses you're using the 529 withdrawal for. If you accidentally withdraw more than your qualified expenses, the earnings portion of the excess is subject to income tax PLUS a 10% penalty. I learned this the hard way when my son's financial aid package changed mid-year, and I had already taken out too much from the 529. Big headache at tax time.

I'm a little confused by the responses here. When I took 529 withdrawals for my kid last year, the 1099-Q form for the withdrawal came with the account owner listed as the recipient, not my kid. Doesn't this mean it has to be reported on the parent's tax return regardless of whose name the withdrawal is made in?

Great question! Based on your situation, I'd recommend having the 529 withdrawal made in your daughter's name (the beneficiary). Here's why this makes the most sense: Since your daughter will receive the 1098-T in her name and she's in a much lower tax bracket ($6K income vs your $190K), having the withdrawal recipient match the 1098-T recipient creates cleaner documentation. This is especially important if the IRS ever has questions about the qualified expenses. Also, if there's ever any miscalculation that results in a small non-qualified portion, the tax impact would be minimal on her return versus yours given the income difference. One timing tip: make sure you take the withdrawal in the same calendar year you're paying the tuition. Taking a December withdrawal for January tuition can create unnecessary complications. Keep detailed records matching your 529 withdrawals to the qualified expenses on the 1098-T. This documentation will be crucial if you're ever audited. The good news is that as long as you're using the funds for qualified education expenses, the withdrawal is completely tax-free regardless of whose name it's in.

Just wanted to add another perspective on this - I've been managing 529 withdrawals for three kids over the past few years, and I always go with having the withdrawal in the student's name. Beyond the tax benefits others have mentioned, there's also a practical advantage: if your daughter ever needs to provide documentation to the school's financial aid office about how expenses were paid, having everything in her name makes that process much smoother. One thing I learned the hard way with my first kid - make sure you understand exactly what counts as "qualified expenses" beyond just tuition. Books, supplies, and even a computer can qualify if it's required for coursework. Room and board qualify too, but as someone mentioned, they're capped at the school's official allowance amounts. I keep a folder (digital and physical) with all the receipts, the 1098-T, and the 529 statements together. It takes a few minutes of organization each semester, but it's saved me hours during tax season. The peace of mind knowing everything is properly documented is worth it, especially when you're dealing with tens of thousands of dollars in education expenses.