I'm writing for guidance on an esoteric 529 issue and I hope you can help me or
point me in the right direction. I can't find anything on point in my research. I have a situation where there are multiple 529 plans with different owners and the same beneficiary and the combined withdrawals exceed the qualified education expenses. There's also a scholarship involved. I'm trying to figure out who has to report what.
Facts: Taxpayer has a 529 plan with his son as the beneficiary. Son also has
his own 529 plan. In 2017, withdrawals were taken from both plans and the
taxpayer and son each received a Form 1099-Q for their respective withdrawal.
The combined distributions exceed the qualified education expenses. The son received a scholarship as well. Roughly speaking the numbers are as follows:
Taxpayer 529 plan withdrawal $37k
Son 529 plan withdrawal $8k
Qualified expenses per 1098-T $50k
Scholarship per 1098-T $22k
I have distributions of $45k and net qualified expenses of $28k. Do I allocate the expenses and scholarship proportionately to the taxpayer and son based on the relative withdrawals and proceed to report each one's share on his own return? Do I have to figure out
which distribution was taken first and assign the expenses on a FIFO basis? Can
I allocate the expenses (and 529 plan withdrawals) all to the taxpayer or all to the son? Can I allocate the expenses differently than the scholarship (not sure why I'd want to)? The
only thing I'm sure of is that I can't use the same expenses on both returns. I understand the IRS takes a dim view of double dipping.
Many thanks in advance!