Q. So am I correct in assuming that none of the distribution is considered earnings?
A. Yes, but only if the 2023 distribution (withdrawal) was the only distribution over the years.
Q. Therefore I just pay the penalty for non-qualifying expenses and don't pay any income tax?
A. If there are no earnings, there is no income tax and there is no penalty. The penalty is 10% of the earnings portion of the distribution, not 10% of the whole distribution.
Q. And in the TurboTax 1099-Q section, how should I enter this information, since the basis totals to 100%?
A. Since you know none of it is taxable, just don't report the 1099-Q*. When none of the distribution is taxable, TurboTax will enter nothing about the 1099-Q on the actual tax forms. Otherwise, box 2 can be 0 or a negative number.
The lack of earnings may explain why you didn't get a 1099-Q.
*References:
On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
