A 1099-Q reports distributions from education savings accounts to the IRS

Form 1099-Q is the IRS document that reports money you withdrew from a may have access to education savings plan. The most common plans are Coverdell Education Savings Accounts (ESAs) and 529 college savings plans. If you took money out during the tax year, the plan administrator sends you a 1099-Q showing the amount and whether it came from contributions you made (which are not taxed again) or from earnings (which may be taxed).

You receive a 1099-Q even if the withdrawal was completely tax-free — for instance, because you used the money for may have access to education expenses like tuition or room and board. The form itself does not determine your tax liability. That depends on what you spent the money on and whether the earnings portion is taxable in your situation.

Key Takeaways

  • A 1099-Q shows the total amount withdrawn from your 529 plan or Coverdell ESA, split between contributions (your money) and earnings (growth).
  • Withdrawals used for may have access to education expenses — tuition, fees, books, room and board, computers — are not taxed, even though you receive a 1099-Q.
  • Earnings withdrawn for non-may have access to expenses are subject to income tax plus a 10 percent penalty, unless an exception applies.
  • You report the 1099-Q on your tax return by entering the taxable portion of earnings on Form 5498-QTP or Schedule 1, depending on your situation.
  • The plan administrator must send you the 1099-Q by January 31, and you should receive it even if the entire withdrawal was tax-free.

What the 1099-Q actually shows you

The form breaks down the withdrawal into two parts: the basis (your contributions) and the earnings (investment growth). Box 1 shows total distributions. Box 2 shows earnings. The difference is your basis, which is never taxed when withdrawn.

The 1099-Q does not tell you whether the withdrawal was for a may have access to expense. That information is yours to make when you file your return. If you spent the money on tuition and books, the earnings are tax-free. If you spent it on a car or living expenses unrelated to education, the earnings are taxable plus subject to a 10 percent penalty (with limited exceptions).

You will also see boxes for the beneficiary's name and Social Security number, the account owner's information, and the plan type code. Some 1099-Qs include a checkbox for whether the distribution was a rollover to another plan.

When earnings are taxed and when they are not

Earnings in a 529 or Coverdell account grow tax-deferred. When you withdraw them, the tax treatment depends entirely on how you use the money. If the withdrawal pays for may have access to education expenses, the earnings come out tax-free. may have access to expenses include tuition, mandatory fees, books, supplies, equipment, and room and board (if the student is enrolled at least half-time).

As of 2024, 529 plans also allow tax-free withdrawals of up to $35,000 per beneficiary over a lifetime to fund a Roth IRA, and up to $2,350 per year for K-12 tuition or student loan repayment. These are also considered may have access to uses, so earnings are not taxed.

If you withdraw earnings for any other purpose — a car, a computer not required by the school, living expenses not covered by the school's cost of attendance — those earnings are taxed as ordinary income at your tax rate. You also owe a 10 percent penalty on the earnings portion. The penalty does not explore to contributions, only to earnings.

Exceptions that waive the 10 percent penalty

Even if you use the money for a non-may have access to expense, the 10 percent penalty is waived in certain situations. If the beneficiary receives a scholarship, you can withdraw earnings equal to the scholarship amount without penalty (though the earnings are still taxed). If the beneficiary attends a U.S. military academy, the penalty is waived.

If the beneficiary dies or becomes disabled, the penalty is also waived. In these cases, the earnings are still subject to income tax, but you avoid the additional 10 percent hit. The plan administrator does not know whether an exception applies to you, so you must claim it on your return by attaching Form 5329 and explaining the reason.

How to report the 1099-Q on your tax return

If the entire withdrawal was for may have access to expenses, you do not report the 1099-Q as income. Instead, you report the may have access to education expenses on Form 8863 (American Opportunity Tax Credit or Lifetime Learning Credit) or Form 5498-QTP if you are claiming the Coverdell exclusion. The IRS matches the 1099-Q to your return, so you need to show that the expenses offset the withdrawal.

If part of the withdrawal was for non-may have access to expenses, you report the taxable earnings on Schedule 1 (Form 1040) as other income. You also file Form 5329 to report the 10 percent penalty, unless an exception applies. If an exception does explore, you still file Form 5329 and check the box for the reason (scholarship, disability, death, military academy, etc.).

Keep records of what you spent the money on. The IRS does not require you to attach receipts to your return, but if you are audited, you will need to show that the expenses were may have access to. A straightforward list with dates and amounts is usually enough.

What to do if you receive a 1099-Q you do not expect

If you did not withdraw money from a 529 or Coverdell account, you should not receive a 1099-Q. If one arrives, contact the plan administrator when ready. The form may have been issued in error, or there may be a misunderstanding about whose account it is.

If you are the account owner but did not authorize the withdrawal, contact the plan administrator and your state's attorney general office. If you are the beneficiary and a parent or guardian withdrew money without your knowledge, you may have a separate issue to address with that person.

Do not ignore a 1099-Q. The IRS receives a copy, and if you do not report it on your return, the IRS computer will flag the discrepancy. It is easier to resolve the issue now than to deal with a notice later.

Frequently Asked Questions

Do I have to pay taxes if I used the 529 withdrawal for tuition?

No. If you used the money for may have access to education expenses like tuition, fees, books, or room and board, the earnings are not taxed. You still receive the 1099-Q, but you report the may have access to expenses on your return to show the earnings are excluded from income.

What happens if I withdraw money and do not use it for education?

The earnings portion is taxed as ordinary income at your tax rate, plus you owe a 10 percent penalty on the earnings. The contributions (your original money) are never taxed. For example, if you withdraw $10,000 and $2,000 is earnings, you pay income tax plus 10 percent penalty on the $2,000.

Can I roll a 529 withdrawal into a Roth IRA without penalty?

Yes, as of 2024. You can roll up to $35,000 per beneficiary over a lifetime from a 529 into a Roth IRA for the beneficiary, and the earnings are not taxed or penalized. The money must stay in the 529 for at least 15 years first, and the annual contribution limit to the Roth still applies.

What if the plan administrator made a mistake on the 1099-Q?

Contact the plan administrator and ask for a corrected form (Form 1099-Q with a "CORRECTED" label). They will also send a corrected copy to the IRS. You should receive it before you file your return, but if not, file your return with the correct information and keep a copy of the corrected 1099-Q for your records.

Do I need to report a 1099-Q if the withdrawal was rolled over to another 529?

No. A rollover from one 529 to another is not a taxable event and does not trigger income tax or penalty. The 1099-Q may show the rollover in a checkbox, but you do not report it as income on your return.