529 Plan, Stock Sale Do To Parents Hardship

[SFBOB]

Parents had to withdraw money from son's 529 plan. 1099B issued under the son's S/S number.Any suggestions to avoid tax on the gain, and or exclude part based upon furture college needs. What is to say that the funds were not needed to prepare for college in 2011. Son is away at college as I post this question. Sorry to say, I have not dealt with 529 transactions before. Any help will be appreciated. Bob

[Gary2]

A 529 plan should be issuing a 1099-Q, not a 1099-B. Are you sure about the status of the funds?

[SFBOB]

Thanks Gary. I will follow up with my client. Bob

[SFBOB]

529 Distributions Ordinary Income Line 21

Just got the correct information from the client. Sad, hardship with this economy required distribution on the form 1099Q as Gary said. The money was not used for education. Even though earnings were from Capital gain; the earnings are reported on Line 21. The instructions on the back of the form are very good. There is also Pub 970 for additional information. Thanks To All and Have a GOOD NIGHT!! Bob

[Gary2]

Check whether the 1099-Q was issued in the son's SSN or the parents'. As far as I know, there's no traceability requirement to show that the funds were directly used for educational expenses, as long as those expenses were incurred in the same calendar year. There's not even a requirement that the son be a dependent, but that could be a problem if the 1099-Q was issued with a parent's SSN.

Also, keep in mind that the qualified expenses aren't as limited as they are for the educational credits. Computer expenses and internet access can qualify. If he's at least half time (and he probably is, if he's away at school), then room and board qualify.

Unless the son got a full ride or just started college this year, there should have been some educational expenses in 2010. Even if he started now, there may have been tuition, room and board, or computer payments made in 2010.

[SFBOB]

Thanks Gary2 1099Q issued under Parents S/S

Gary Thanks a bunch for the detailed info on the 529 Plan; Coverdell Education Savings Plan [CESA].This family is really hit hard with this economy. They have had to sell stocks, withdraw IRA money,pay 10% penallties and now draw from the childrens 529 Plans.The details on the back of the 1099Q form are quite good. Also there is a Pub 970. Thanks Again. Bob