Exception to Additional Taxes on Qualified Plans (Form 5329)

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bnmcdonald
bnmcdonald Member Posts: 1 Newcomer

Hello. Is FreeTaxUSA able to handle the circumstance in which non-qualified distributions from a 529 Plan are NOT subject to the additional tax "…because of attendance by the beneficiary at a US military academy"? How is that exception applied in the software?

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  • Taxlady06
    Taxlady06 FreeTaxUSA Agent Posts: 59
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    If your 529 distributions are for qualified educational expenses (including the US military academy) these distributions generally do not need to be included on your return as this is non-taxable income.

    The IRS specifically states that in most cases, the beneficiary doesn't include in income any earnings distributed from a QTP if the total distribution is less than or equal to adjusted qualified higher education expenses.

    For additional information, please refer to https://www.irs.gov/publications/p970