Hi Experts,
I read a similar post that I would need to file the Form 5329 (with 6% penalty fee) for each of my 2 beneficiaries (under 18) on their separate Coverdell accounts since I just realized tax year 2019 & 2020 I over contributed to their accounts. I am also not qualified to contribute for 2021. Pls. kindly advise questions below:
1. I will remove the over contribution. But the distribution that I take out, would those need to pay the 10% penalty as well?
2. If I want to open a new 529 accounts and put in the distributions taken out, would this consider as rollover and won't incur the 10% penalty fee? I can ask if the brokerage company can mail the distribution check or e-transfer directly to the new 529 account to avoid sending back to me for penalty fees?
3. If there's no way to avoid penalty fees, can the distribution be used for the private school tuition as it will qualify to be the education expense?
4. Since both children's account need to remove the excess contribution, can I use child A's distribution (without paying extra fees) for child B's tuition cost since B is on private school?
5. In 2023, I will receive the 1099R or 1099Q for both 2019 and 2020 tax year, both can just be reported on 2022 tax return? I will remove the over contribution and will have the brokerage company calculate the earnings on the contribution and withhold taxes from the distribution (best way to do?).
6. Per Pub 970, the beneficiaries are responsible for excess contribution and they don't file tax return on their own, so I just file Form 5329 will be sufficient? There won't be a need for me to amend my tax return for 2019 and 2020? If no, any way to avoid?
7. I would need to file year 2019 and 2020 Form 5329 for both children. Form 5329 should still file with my name and SSN# and file Part V (mainly line 28, 31 and 33)?
8. Please advise the best way to handle this situation to avoid paying more penalty fee or taxes.
Thank you so much!!
