I discovered in April of 2021 that I had made excess contributions to my son's Coverdell ESA account in 2018, 2019, 2020, and 2021. At this time, my son is still in high school. So I set out to try and fix my mistake then and now need to report this on my taxes. I submitted an ESA withdraw form for each year and I indicated that is was due to an excess contribution. For each year of excess, I calculated the gains that those contributions made at the time of withdraw in 2021 and withdrew the contribution plus gain. I deposited that money into a 529 plan but I did not do any kind of rollover or fill any forms for this transaction . I simply deposited the withdraw into my banking account and then sent the money to the 529 account.
A complicating factor in all of this is that the brokerage account was bought by Schwab right before I realized my mistake. So they do not have all the history of these contributions.
Fast forward to this year and I received 3 1099-Q forms from Schwab. One for 2021, one for 2020, and one that had 2018 and 2019 combined. All 3 have the tax year listed as 2021. The 2020 and 2021 forms state that the withdraws are excess contributions and include the gross distribution amount and the earnings in addition to the Fair Market Value, not the basis. The 1099-Q for 2018/19 does not state that it is for an excess contribution and only has the gross amount. Schwab said that is all they could do since they do not have enough information since it was prior to their purchase.
I have spoken to a couple CPAs in my area and neither knew what to do. I am still searching for one that can help but hoping someone here can. Here are some of my specific questions/comments.
1) Based on what I have read, I should have to pay a penalty for each year the individual excess contributions remained in the account. I am confused how that would get reported in less I have to fill amended tax returns for 2018, 2019, and 2020. Is that what I need to do?
2) If yes to 1), then do the 1099-Q forms need to be redone to have the appropriate tax year on them? I don't even know what that would mean for the earnings since I calculated the earnings up until 2021.
3) If no to 1), then I am not sure how to use Turbo Tax or form 5329 since both only reference 1 prior year, ie 2020
4) In either situation, I am not sure what the basis is. This ESA was opened in 2006 and contributed to most years. Would the basis be the sum total of all contributions up to a certain point? Or would it be related just to the excess contribution in some way.
5) I assume the 2018/19 form was produced as a regular withdraw and not an excess contribution. What does that imply for this tax return?
6) Another post on the community indicated that a 529 plan counts as a qualified education expense and perhaps I won't be penalized for some or all of these withdraws. I read the tax law that the post linked to, but it wasn't clear to me. Can anyone confirm that and what that would mean as far as the 2021 taxes?
Thanks for any help,
David
