1. The 1099-Q that you receive for pulling out the excess contributions should be coded '2' or '3' which just means that you are pulling out excess contributions and earnings. The earnings should appear in box 2a as the taxable amount. The taxable amount should be subject to a 10% penalty.
2. Correct.
3. If it is used for qualified educational purposes it doesn't have to be reported at all. Save the receipt and if you are questioned over the distribution provide receipts showing how the money was spent.
4. When you pull the money out the overcontribution and withdrawal should hopefully be coded '2' which says it is to be reported in the current year, not the prior year.
5. Match your 5329 forms to the 1099-Qs that you receive. If you get four forms respond with four forms. The IRS likes things that match.
Bonus question - 529 plans don't have contribution limits like Coverdell plans do. However, deposits put into them do count as gifts and the gift exclusion is $15,000 ($30,000 for a married couple) so that is the effective limit. So putting your overcontribution into a 529 instead of a Coverdell is a fine plan. Not as good as spending it on education expenses which eliminates the need to worry about any of this, but still a fine plan.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
