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Question

How do I specify a 529c basis (original principal) withdrawal so I do not have Federal Tax on that withdrawal?

Forum|Forum|1 year ago
February 16, 2025
1 reply
0 views

E.g. If on my 1099C I have a $10,000 withdrawal, with $8000 Earnings and $2,000 Basis, how do I specify the Basis amount of $2,000 as a non-educational expenses withdrawal without getting taxed on the $2,000? The $8,000 Earnings will be used for educational expenses.

Unfortunately, you cannot designate return of contributions be applied to expenses so that there is no taxable amount. Your 1099-Q has a Box 1 for Gross Distribution and a Box 2 for Earnings and Box 3 is Basis. If the distribution is not all used for Qualified Educational expenses, the taxable amount is the earnings pro rata. See Figuring the Taxable Portion of a Distribution.