You can use 529 funds for anything. Problem is paying taxes is not a qualified expense, so you’d then be taxed and penalized on that the following year.
We used a 529 for R&B. In order to get the 1099-Q to show up with our D’s SSN rather than ours, we had to have the 529 provider send it to the school, and then have D request a refund from the school. We did this once a calendar year to cover the R&B costs.
Yikes!
*The “Simplified” Kiddie Tax – Congress Has a Sense of Humor After All:
The 2017 tax act requires each child subject to the kiddie tax to construct his or her own tax table based upon the child’s net unearned income, earned taxable income, and the maximum amounts of income subject to rates provided in the estate and trusts tax table. The tax table is constructed by using the tax table applicable to unmarried taxpayers, but is modified with the child’s “earned taxable income” and the minimum and maximum dollar amounts – not rates – from the estates and trusts income tax table. The term “earned taxable income” is a new term of art. One of the interesting aspects of earned taxable income is that it is possible for a child to have earned taxable income without even having earned any income from his or her labor or services.
…But, practitioners should know that the new kiddie tax is not simply calculated by subjecting the unearned income of a child to the tax table for estates and trusts contained in §1(j)(2)©. It is far more complicated than that.
I had the 529 distributions (including the part used for R&B) sent directly via electronic transfer to my daughter’s checking account, and she then wrote the checks to cover the qualified expenses. All the 1099-Q forms came to her under her SSN.
Very interesting. Thanks for posting this, Madison85. Is this requirement for a child subject to the kiddie tax to “construct his or her own tax table” a result of statutory language, or is it part of the IRS regulations? Do you have a reference for the source information, and also for the article quoted?
All I can say is I’m thrilled my daughter graduated this year and will be independent for tax purposes next year! No more kiddie tax.
https://www.bna.com/simplified-kiddie-tax-b73014476494/
The regulations aren’t out yet so I assume it is the author’s interpretation of the statutory language, regarding ‘constructing tax tables’.