Hi Experts,
I had a distribution from the Coverdell account due to excess in contribution in 2021. I was told by the brokerage company that they couldn't withhold federal and state taxes on the earnings for Coverdell accounts. They couldn't explain why. Any idea?
Thank you very much for the assistance!
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There's no place on IRS form 1099-Q to report withholding.
Thank you! So on my 2022 tax return, I would need to pay federal and state taxes for the earnings shown on 1099Q, correct? For the earnings, would I need to report on my 2021 tax return so I won't need to amend when I do taxes in 2022?
Thank you so much!
Kindly advise, any insight on this?
I have no experience with excess ESA contributions.
The Coverdell is not like an IRA with the excess. Publication 970, Tax Benefits for Education page 44 shows your options. If you are taking the interest earned before June 1, you will not have excise tax on that amount. If you reduce your 2022 contributions by the amount of overage, you will eliminate all overage and penalty. You only pay tax on the interest earned.
Since I like to keep all forms matching and straight forward, I would not enter the excess this year without a form. The form will come next year and match IRS records and will be entered on 1099-Q. It goes to your sch 1, line 8z.
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