1099-q

[GIMoe]

Client has 2 Dependents, ages 14 & 12. Parents pulled $500.00 from each child's ESA to open a CD. This was when the market was tanking and they figured they could get a better ROI from a CD. The 1099-Qs come in the children's names and socials. The question is should these be filed since it is under the $900.00 minimum per child but will incur an early withdrawal penalty (10%). What are the options.

I know this seems like it should be straight-forward but that's when I start second guessing myself. It must be the lack of sleep. I though I would just bounce it off the board here for a sanity check. Thanks for your help.

[solomon]

From your post, I gather there were no rollovers. The original contributions would not be taxable - only earnings if any.

[GIMoe]

From your post, I gather there were no rollovers. The original contributions would not be taxable - only earnings if any.

So, the 10% penalty would only be applied to earnings. And, is this still reportable even though the beneficiary is a minor and the amount is well below to threshold of requiring to file? If so, could this be added to the parents return with an 8614?

Apologize for the questions, just trying make sure I have all my ducks in a row, so to speak.

Thanks for the help.

[BP.]

So, the 10% penalty would only be applied to earnings. And, is this still reportable even though the beneficiary is a minor and the amount is well below to threshold of requiring to file?

TTB 12-5, middle of 1st column: "The taxable amount is subject to a 10% additional tax . . . " The 10% penalty can only apply to earnings that are taxable. Nothing taxable --- no penalty.

[GIMoe]

TTB 12-5, middle of 1st column: "The taxable amount is subject to a 10% additional tax . . . " The 10% penalty can only apply to earnings that are taxable. Nothing taxable --- no penalty.

Thanks for the reply and the reference. I knew it was right in front of my face, but for some reason, I couldn't see it.

I appreciate the help, thanks again.