1099Q Not pre-taxed dollars

Forum|Forum|6 years ago
April 18, 2020
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My granddaughter's Texas Tomorrow Fund had reached it 10 year limit and I was reimbursed the unused monies plus interest. The money I put into this account was NOT pre-tax dollars. However, on my return I'm being hit with an extra 10% penalty for the interest I received (Schedule 2, \ line 6. Do I have to pay this extra tax? If not, how do I get it off my return?

Hal_Al

Employee

Yes the 10% penalty for a non qualified distribution is correct.

Note that the penalty, as well as the tax, is on the amount in box 2 of the 1099-Q (the "earnings", over the years), not the total distribution (box 1 of the 1099-Q).

The money you put into this account, with after tax dollars, is shown in box 3 of the 1099-Q, is not subject to either tax or the 10% penalty.

You had the option of naming a new beneficiary or rolling over the account to another 529 plan to avoid the tax and penalty. But that had to be done within 60 days of the distribution date.