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mtgramabear
New Member

How do you calculate the taxable portion of interest on a 529 plan shown on 1099-Q if not all of the distribution was used for allowable college expenses?

 
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MinhT
Expert Alumni

How do you calculate the taxable portion of interest on a 529 plan shown on 1099-Q if not all of the distribution was used for allowable college expenses?

The taxable portion of earnings on a 1099-Q distribution is pro-rated as follows:

Taxable earnings = Total earnings x Distribution not used for allowable expenses / Total distribtions

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MinhT
Expert Alumni

How do you calculate the taxable portion of interest on a 529 plan shown on 1099-Q if not all of the distribution was used for allowable college expenses?

The taxable portion of earnings on a 1099-Q distribution is pro-rated as follows:

Taxable earnings = Total earnings x Distribution not used for allowable expenses / Total distribtions

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**Mark the post that answers your question by clicking on "Mark as Best Answer"
mtgramabear
New Member

How do you calculate the taxable portion of interest on a 529 plan shown on 1099-Q if not all of the distribution was used for allowable college expenses?

I had read some place that the calculation in order to compute the penalty for withdrawing money that was not used for college expenses is: account contributions/account value x distribution = contribution portion and that the original contribution would never be penalized.  Is this calculation correct?
MinhT
Expert Alumni

How do you calculate the taxable portion of interest on a 529 plan shown on 1099-Q if not all of the distribution was used for allowable college expenses?

The account contributions are never subject to tax or penalty. This is because the 529 contributions were made from after-tax dollars. Only the earnings can be subject to tax and penalty if the distributions are not used for allowable expenses.
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