Cashed in Texas Tomorrow Fund - mistake

Paying for College
1

<p>My daughter went to an out of state private college so I cashed in my Texas Guaranteed Tuition plan and have used 50% for the first year. But I just received a tax form showing $10,000 worth of earnings on the fund.</p>

<p>I used 100% of the money for her tuition. Is that $10K really going to be taxable income? It will count against me as income AND as part of account balance for expected financial computation?</p>

<p>I think I really screwed up!</p>

<p>Help!</p>

2

<p>If it is like a 529 account, you have to use it in the year you withdraw it in order to get the tax break. So you may have to pay tax on part of it. It would have been reported as an asset and counted in the EFC whether of not you cashed it in.</p>

3

<p>My 1099-Q forms show earnings as well…it’s for information purposes only. It’s up to me to decide if the funds were used for QEE. If so, I can disregard the earnings info. On the other hand, if the withdrawals were not used for QEE, then I have the info I need from my 1099-Q as far as earnings which I need to fill out my IRS 1040 form.</p>

<p>If you made the withdrawals in calendar year 2013…AND…paid the tuition in 2013 you are all set.</p>

4

<p>Where is the remaining 50% of your withdrawal money?</p>

5

<p>The Texas Guaranteed Tuition Plan appears to be a 529 plan. Here are some FAQs about your 1099Q:</p>

<p><a href=“Texas Guaranteed Tuition Plan”>Texas Guaranteed Tuition Plan;

<p>$10k of earnings is a lot, how much was the entire distribution? If, in fact, you did pay an amount for qualified education expenses in 2013 that was equal to or exceeded the entire distribution received in 2013 then you don’t have a taxable amount. But first you said 100% was used for tuition then you said 50% was used the first year. If only 1/2 of the distribution was used to pay expenses in 2013, then the earnings on 50% of the distribution is taxable income to your student. QEE for 529 plans is tuition, mandatory fees, required books and supplies and also includes room and board for a 1/2 time or greater student. You have to reduce the QEE by any scholarships or grants the student received.</p>

<p>IRS Pub 970, chapter 8 has the details:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p&gt;

<p>Note that you can’t use the same expenses paid for with a tax-free 529 distribution to claim an education credit such as the AOC.</p>