Client has a distribution from a "Qualified Education Program."
Gross Distribution (Box 1) - $746
Earnings (Box 2) - $92
Basis (Box 3) - $654
Fair Market Value - zero now
They didn't use it for educational purposes; just cashed it in and took the money.
Question -- What's counted as income? It looks to me like it should be $92 since he invested the other $654 himself and it was never deducted on a return.
On the other hand I read something about distributions (don't know what part) being taxable if they weren't used for books, supplies, tuition, etc. Does the whole thing become taxable as a sort of penalty for NOT doing what Uncle Sam wants him to with it?
Gross Distribution (Box 1) - $746
Earnings (Box 2) - $92
Basis (Box 3) - $654
Fair Market Value - zero now
They didn't use it for educational purposes; just cashed it in and took the money.
Question -- What's counted as income? It looks to me like it should be $92 since he invested the other $654 himself and it was never deducted on a return.
On the other hand I read something about distributions (don't know what part) being taxable if they weren't used for books, supplies, tuition, etc. Does the whole thing become taxable as a sort of penalty for NOT doing what Uncle Sam wants him to with it?
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