Personal Finance (Not Investing) • 529 excess withdrawal

I am an undergraduate student who is not claimed as a dependent on any tax return, and my income exceeded half of my support. I am trying to claim the American Opportunities Tax Credit, but my concern is that some of the money used to cover my tuition came from a 529 owned by my dad with me as a beneficiary. The 529 covered nearly 100% of 529-eligible expenses (including room and board). According to IRS Form 5329 instructions, "Distributions from an education account included in income because you used the qualified education expenses to figure the American opportunity and lifetime learning credits" are exempt from a 529 excess withdrawal penalty. This leads me to believe that I can claim the full AOTC, and then, (([my 529-qualifying expenses] - [$4000 of tuition on which the AOTC is applied]) * [percentage of the 529 that is growth]) is claimed as income based on Form 5329, and subject to normal income taxes.

I am wondering if this is correct (that I can claim the AOTC, calculate that amount above, and then someone files Form 5329 and claims that amount as a penalty-free excess withdrawal on Form 5329). If so, who files Form 5329 and counts this as income? I'm in a lower tax bracket than my dad, so it would be preferable if it were me, but I'm not sure if that's correct (if it changes anything, my dad paid these expenses out of his account and reimbursed himself with a 529 withdrawal—my guess is that it would be income for me if the withdrawal was given to me, but since it went into his account, now it is income for him instead).

Statistics: Posted by personpersonperson — Mon Mar 04, 2024 3:50 am — Replies 0 — Views 49

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