529 Distribution allocation

ProfessorSteve · ‎February 6, 2022

My son moved from one state to another midyear. The contributions into his 529 plan were all made in the former state, but he received distribution in the new state. Filling out his Part Year resident forms for the former state, it asks what amount of the earnings was earned while a resident of it. One thought is all the money was contributed while living in his home state; another thought is all the actual earnings were obtained when he received the distribution while living in the new state. What is the proper state to declare the earnings in?

LeonardS · ‎February 6, 2022

Contributions to a 529 plan are not deductible and therefore distributions do not have to be reported on your tax return. Distributions from a 529 plan are not earnings for tax purposes.

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Hal_Al · ‎February 6, 2022

Q. What is the proper state to declare the earnings in?

A. The state he was living in when he took the distribution (the actual earnings were obtained when he received the distribution while living in the new state).

But, why are you reporting any income. There is no taxable income, if the distribution was used for qualified educational expenses, including room and board. The earnings are tax free in that situation.