topic 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? in Retirement tax questions

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?

mtgramabear — Thu, 06 Jun 2019 13:54:25 GMT

The taxable portion of earnings on a 1099-Q distribution...

MinhT — Thu, 06 Jun 2019 13:54:26 GMT

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

I had read some place that the calculation in order to co...

mtgramabear — Thu, 06 Jun 2019 13:54:29 GMT

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?

The account contributions are never subject to tax or pen...

MinhT — Thu, 06 Jun 2019 13:54:30 GMT

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.