1099Q withdrawl by parent to pay mortgage and buy food.

[SFBOB]

529 Plan was set up for sons college. 1099Q was issued under the mothers S/S number because money was needed for household expenses.Distribution was $62,000 Basis $47,745 with earnings of $14,255. I have found information stating that taxable amount can be reduced by qualified education expenses if the original beneficairy if the person receiving a 1098T.
The real kicker is that the mother is under 59 1/2 and subject to 10% on Form 5329 for $5131.00. $14,255 earnigs less 1098T qualified expenses of $9124. The most interesting part is that the earnings were capital gain and become ordinary income upon withdrawl. The same example as gain earned in an IRA becomes ordinary income on withdrawl. Who said tax prep is simple? Any one had this example and knows a way around the 10 % penalty?

[Gene V]

529 Plan was set up for sons college. 1099Q was issued under the mothers S/S number because money was needed for household expenses.Distribution was $62,000 Basis $47,745 with earnings of $14,255. I have found information stating that taxable amount can be reduced by qualified education expenses if the original beneficairy if the person receiving a 1098T.
The real kicker is that the mother is under 59 1/2 and subject to 10% on Form 5329 for $5131.00. $14,255 earnigs less 1098T qualified expenses of $9124. The most interesting part is that the earnings were capital gain and become ordinary income upon withdrawl. The same example as gain earned in an IRA becomes ordinary income on withdrawl. Who said tax prep is simple? Any one had this example and knows a way around the 10 % penalty?

Bob,
Using your numbers, I come up with taxable amount of earnings $12,157 and the 10%
penalty on taxable amount of $12,157 = $1216 penalty. With no exception

I figure this by using example in Pub. 970 page 55-57

[BP.]

Using SFBOB's figures, and Gene V's reference to the formula on p. 55 of pub 970:

I did a calculation, but I first applied the full AOC. But of course, I don't know what, if any, credits or deductions for tuition that you will use on the tax return.

But figuring in the use of the AOC, I got $13,077 as taxable earnings. Gene V's calculation was with no tuition credits applied.

In any case, check where Gene V directed you to, for the formula for figuring your taxable earnings portion. Deducting the 1098T figure from the earnings isn't the correct method.

Also, check for books, fees, supplies, etc, not appearing on your 1098T, to increase your education expenses.

[AJsTax]

Be sure

to add room and board to the expenses allowed against the 1099Q, if the student does not live at home.
And remember that the entire amount used for other than educational expenses will be taxable to the state, not just the earnings.

[Gary2]

And remember that the entire amount used for other than educational expenses will be taxable to the state, not just the earnings.

That depends on the state. MA allows no deduction, hence no tax on the previously taxed amount.