529 Principle only Withdrawal

Forum|Forum|3 years ago
January 26, 2023
2 replies
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How do I enter a 529 principle only withdrawal on my taxes. I understand that you are not penalized 10% if you withdraw on what you deposited and not on gains.

MichaelG81

In the search menu type, "529" then select the jump to link in blue.

Click edit or add a 1099Q
Make sure your basis (or original amount you put in) is in Box 3.
Enter this information click continue from your 1099-Q form
Go through interview and answer honestly, you may think it is taxable but it may not have an affect on your taxes. Especially if it was a principal withdrawal.

If your gross distribution is higher than your basis you may be taxed on earnings. Seems like this is not the case with the info provided.

@oubrebm

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Hal_Al

Employee

You are not allowed to take a "Principal only" Withdrawal (distribution). Every distribution is part earnings (box 2 of the 1099-Q) and Basis (principal) (box 3). The earnings portion is subject to tax and 10% penalty.

Only if the account never earned any money or shows a loss, there will be 0 in box 2 of the 1099-Q and nothing will be taxed and there will be no penalty.

You may be thinking of a Roth IRA, where you are allowed to withdraw your contributions (principal) tax and penalty free.