Q. As I understand - You can withdraw funds from a custodial account for educational purposes - tax free.
A. That is generally true.
The actual withdrawal of money, from the account, is not taxable. What is taxable is the interest, dividends and capital gains distributions, paid from the account during the year. Also taxable, are the capital gains realized when stocks, bonds and mutual fund shares (securities) are sold, to generate cash for the withdrawal of money.
Q. How the grandchildren report this on their tax return? 1099 from Charles Schwab shows the withdrawal. A. No, the 1099 does not show "the withdrawal". A 1099-Div shows dividends and maybe capital gains distributions. A 1099-INT shows interest. A 1099-B shows gross proceeds from the sale of securities which will result in a capital gain (or loss). Each 1099 is entered in it's designated place in TurboTax*.
Q. How do I deduct use for tax-deferred college tuition on tax return - and withdrawal not subject to taxes.
A. You don't. That's not how it works. Everything on a 1099 is income and is taxable.
*In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in Home & Business)
- Wages & Income
Scroll down to:
- Wages and Salaries
-Interest & Dividends
-Interest on a 1099-INT
- Dividends on a 1099-DIV
-Investment Income
-Stocks, mutual funds, Bonds, Other
