Changing a beneficiary on a 1099Q

[Sandy35]

I have a question regarding the Form 1099Q. This is regarding triplets that are all going to the same college. Their older brother was listed as the Beneficiary and he used some funds a few years back. The triplets had some funds transferred directly to the college for the fall term.  We just realized that the 1099Q was issued under their brother's SS and name.  Is it possible to have the manager of the 529 account issued a corrected 1099Q?  What else can be done to correct this problem?  What are the tax consequences for the brother if this cannot be fixed?

[Hal_Al · Accepted solution]

You don't need a corrected 1099-Q (and probably can't get one anyway).

If the 1099-Q amount was totally used for qualified expenses, including room and board, with no adjustments for scholarship or credits/deductions, it does not need to be reported anywhere. 

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." 

Even if some of it is taxable, the brother, as "recipient",  is allowed to report it on his return even though the beneficiaries were not his dependents.

But you may have a bigger problem.  Was the beneficiary(s) of the account actually changed before the distributions were made? If the brother was still the beneficiary, at the time of the distribution, you have a non qualified distribution because the money was not used for the educational expenses of the beneficiary of the account. 

[Sandy35]

Thank you for your response.  Apparently, we do have a problem because he was the beneficiary at the time the funds were transferred to the college for his sisters. Should we amend his 2020 tax return and state that it was an unqualified distribution?  I was thinking that the interest would be lower if it was addressed promptly.

[Hal_Al]

it's too soon to amend a filed return.  You must wait til his first return is fully processed. 

In the meantime talk to the plan administrator, to see if there is anything that can be done retroactively (I doubt it)