1099-Q Question on Closed 529 Plan

Forum|Forum|5 years ago
April 10, 2021
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We closed our son’s 529 college tuition plans. We will not use the money for anything college related. We received a 1099-Q form from the college saving plan company. When we entered the form into our taxes, it increased what we owed by several thousands. Of course, we already paid taxes on the money used to fund the 529 plan. Do we have to file this on our taxes?

Hal_Al

Employee

Yes. Because you did not use the money for anything college related, you have a non-qualified distribution. As such, the amount in box 2 of the 1099-Q is taxable. Box 2 is the "earnings", the amount you did not already pay taxes on when you funded the 529 plan. In addition there is a 10% penalty on the box 2 amount for the non qualified distribution.

If you or the beneficiary paid student loans, in 2020, you my claim up to $10,000 of the box 1 amount as a qualified distribution.