One of the rules for 529 savings plans, which are generally set up to fund a child's college education, is that the money must go toward covering qualified education expenses. Otherwise, the earnings portion of any withdrawals will be subject to taxes and a 10% penalty.
For you to avoid the taxes and penalty, first, you will need to rollover the $14,000 distribution to a Qualified Tuition Program (QTP) 529 Plan within 60 days of 12/22/22. It can be rolled over to another QTP for the same beneficiary or a member of the family or to an ABLE account for the same beneficiary or a member of the family. If you are considering rolling the funds to an ABLE account, there are annual contribution limits.
Secondly, you will have to request a withdrawal in 2023 to cover the educational expenses that you will pay for in 2023. You are correct that you will receive a 1098T with the educational cost for 2023.
You will receive forms 1099-Q and 1098-T in 2024 with the amounts of your 529 plan distributions and how much the tuition was. You will have to reconcile and calculate if there is a taxable portion. Please note, the 1099-Q should be reported on the tax return of the person whose SSN is on the form.
For additional information, please take a look at the TurboTax article What is IRS Form 1099-Q?
For additional details, please review the IRS Pub 970 - Tax Benefits for Education.
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