EARep
Level 1
12-07-2019
07:09 AM
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The gross distribution, earnings and basis are all reported on the Form 1099-Q but box 4 is marked "no." The distribution was taken and spent on education expenses and reported to the 529 plan. Does the plan only allow trustee to trustee transfers to be non-taxable and free from the penalty?
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sjrcpa
Level 15
12-07-2019
07:09 AM
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Distributions used for qualified educational expenses are not taxable.
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abctax55
Level 15
12-07-2019
07:09 AM
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Be prepared (& inform your client...) for the possibility that the IRS will question it tho as it seems to happen often.
I usually footnote the distribution as "used for qualified educational" (not that the IRS reads those...) so I can print it out quickly to send if/when the IRS notice arrives.
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