Handling transfers between ESA and 529 - 1099Q

Forum|Forum|3 years ago
March 31, 2023
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I transferred the entire balance from my son's ESA account to his 529 account. Both with Vanguard. On the 1099-Q for the ESA account, Vanguard coded box 6 (Distribution code) as 1 which applies for distributions including transfers. I never got hold of the funds as it was done by Vanguard. Vanguard also left box 4 empty as it did not consider this as a trustee-to-trustee transfer (as for ESA, Vanguard is a brokerage fir, not a trustee).

Do I need to inform the IRS that this was a transfer and not a withdrawal? If yes, how? Do I attach a note? or use form 8275 'Disclosure Statement'

mglauner

In the 1099-Q section, you can report the distribution as 'Rolled over into another qualified plan'. If you're using TurboTax Desktop, you will see this on the Payments from Qualified Education Plans worksheet in FORMS. No amount of the distribution will be shown as taxable in this case.

Type '1099-Q' in the Search area, then click on 'Jump to 1099-q' to get there.

However, you are not required to enter the fund transfer reported on Form 1099-Q in a non-taxable situation. Keep it for your records, along with documentation of the rollover, in case the IRS questions the distribution with no Education Expenses on your return.

Here's more info on Form 1099-Q.

@ofg007

Hal_Al

Employee

@mglauner said "However, you are not required to enter the fund transfer reported on Form 1099-Q in a non-taxable situation"

That's good advice. Don't bother to try to enter the 1099-Q, in TurboTax. You just risk making an error. When none of the 1099-Q is taxable, TurboTax will enter nothing about the 1099-Q on the actual tax forms. Nothing is sent to the IRS about your 1099-Q.

Reference: On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."