Thanks for this info! Does this mean my dad's distribution might actually be okay under the new rules? Or would we need to wait until 2024 to do this legally? The 529 has definitely been open for more than 15 years.

The new rules don't take effect until 2024, so unfortunately they don't apply to your current situation. For your 2023 taxes, the old rules still apply - meaning the 529 distribution is potentially subject to taxes and penalties if not used for qualified education expenses. If the 529 has been open for 15+ years, you could potentially do a proper rollover next year (2024) following the new rules. But for now, you'd need to handle the current distribution under existing regulations.

Did you use any specific tax software that helped you figure out all the calculations? I'm trying to help my son with a similar situation.

We got a bunch of papers from the insurance company but honestly we were so overwhelmed with grief and funeral arrangements I don't remember a 1099. We just saw the check and deposit instructions. Maybe we missed something important! Actually think I still have the folder with all the insurance papers. Going to dig through it tonight. Do you know if it would specifically say "1099" or could it be called something else?

It would definitely say 1099 on it, but could be different types like 1099-R (for retirement distributions), 1099-INT (for interest), or even 1099-MISC. Look for any form with numbers broken down into different boxes or categories. Also check if the policy had what's called a "Modified Endowment Contract" or MEC status. These are life insurance policies that have been funded with more money than tax law allows, which changes how they're taxed. If the policy was a MEC, then part of the payout could definitely be taxable.

I'm not OP but have a similar situation. If the policy was whole life and the death benefit was $200K but only $150K was the actual insurance (with $50K being cash value that built up), is only that $50K taxable? Or is it more complicated?

Not to hijack this thread, but what about if someone cashes out a life insurance policy before death? My uncle is considering this with his policy and I'm trying to help him understand the tax implications.

That's a great point about the Lifetime Learning Credit! Do you know if the income limits are the same as the AOTC? My brother makes around $65,000 per year, so I wasn't sure if he'd still qualify.

For 2025, the Lifetime Learning Credit begins to phase out at $80,000 for single filers ($160,000 for married filing jointly) and is completely phased out at $90,000 ($180,000 for joint filers). Since your brother makes around $65,000, he would be eligible for the full credit amount based on his qualified expenses. The income limits are slightly different than the AOTC, which begins phasing out at $80,000 ($160,000 joint) and completely phases out at $90,000 ($180,000 joint). So at $65,000 he'd be under the threshold for either credit - it really comes down to which one he's eligible for based on his education status.

This is correct. My tax accountant explained that it's about your academic standing, not time spent in school. A student is considered to have completed the first 4 years if they've completed enough credit hours to be classified as a senior (4th year) or above at their educational institution.

Thank you for mentioning this! I had no idea about the First Time Penalty Abatement program. Do you know if I would still qualify even though they had already levied my bank account years ago?

Unfortunately, since they've already taken collection actions like bank levies, you probably won't qualify for First Time Penalty Abatement. That program is typically for taxpayers who haven't had prior issues. However, you might still qualify for abatement under "reasonable cause" if you can demonstrate that your failure to file and pay was due to circumstances beyond your control - things like serious illness, inability to obtain records, or certain types of hardship. The anxiety and depression you mentioned might actually help your case, especially if you have any documentation from a healthcare provider.

That's terrible advice. Don't raid retirement accounts to pay tax debt! The IRS payment plans have relatively low interest rates compared to the long-term growth you're giving up. Plus you'll pay penalties on top of taxes for early withdrawal.

Does this really work? I've heard about this but wasn't sure if congressional offices actually help with tax stuff or if they just take your info and do nothing.

Yes, it absolutely works! Congressional caseworkers help constituents navigate federal agencies - it's literally part of their job. When I called, they had me fill out a privacy form so they could legally inquire about my case, then assigned a caseworker who contacted the IRS Taxpayer Advocate on my behalf. The key is being patient and polite with their office. They deal with lots of cases, so don't expect immediate results, but in my experience, they did follow through. It took about 2 weeks to get resolution, which was much faster than I was getting on my own. Just call your rep's local district office rather than their DC office for best results.

Yeah I did this last month! Call 844-545-5640 to schedule an appointment at your local Taxpayer Assistance Center. When I went in, the agent was able to look up my info and tell me exactly what was happening with my return. Just bring ID and all your tax docs.