Form 1099-Q Instructions: Boxes, Taxable Portion, and 529 Rollovers

Form 1099-Q reports money taken out of a 529 plan or a Coverdell Education Savings Account during the year. The plan administrator sends a copy to whoever received the funds and another to the IRS. Whether any of it is taxable depends entirely on how the money was spent: distributions used for qualified education expenses are tax-free, and only the earnings portion of anything left over gets taxed.

Who the Form Is Addressed To

The name on the 1099-Q matters, because that person is the one responsible for reporting any taxable amount.

For a 529 plan, the form lists the student (the designated beneficiary) as the recipient when the distribution was paid directly to the student, sent to the school on the student’s behalf, or transferred to a Roth IRA for the student. If the account owner took the money instead, the account owner is the recipient.¹ For a Coverdell ESA, the beneficiary is always the recipient, no matter who actually received the check.

Box 6 is checked when the recipient is not the designated beneficiary. That flag tells the IRS the account owner took the distribution rather than the student. If both the owner and the beneficiary pulled money from the same account during the year, each gets a separate 1099-Q.¹

What Each Box Reports

Three dollar amounts and a few informational boxes carry everything you need for the tax calculation.

Box 1 — Gross distribution. The total amount withdrawn during the year, including both contributions and investment growth.

Box 2 — Earnings. The investment growth portion of that withdrawal. This is the only piece that can ever be taxed, and only if distributions exceed qualified expenses.

Box 3 — Basis. Your original after-tax contributions coming back to you. Basis is never taxed again. Box 2 plus Box 3 equals Box 1.

Boxes 4a and 4b — Transfers. Box 4a is checked for trustee-to-trustee transfers between 529 plans, from a 529 to an ABLE account, or between Coverdell ESAs. Box 4b is checked for 529-to-Roth IRA transfers.

Box 7 — Distribution code. Optional context: code 1 is a regular distribution, code 2 is an excess-contribution withdrawal, code 3 covers death or disability, and code 4 covers a change of beneficiary to a qualifying family member. Administrators are not required to fill Box 7 in, so it may be blank.¹

None of these codes decide whether tax is owed. The administrator has no idea how you spent the money. That call is yours.

Which Expenses Keep the Distribution Tax-Free

A distribution is fully tax-free only to the extent it covered qualified education expenses for the beneficiary during the year. Everything else is a non-qualified distribution, and the earnings on the non-qualified portion get taxed.

College and Graduate School

Qualified higher education expenses include tuition, required fees, books, supplies, and equipment required for enrollment.² Computers, peripherals like printers, educational software, and internet access qualify if the student uses them during enrollment. Equipment primarily for games or entertainment does not.³

Room and board qualifies only if the student is enrolled at least half-time. The qualifying amount is capped at the greater of the school’s official room and board allowance in its cost of attendance, or the actual amount invoiced for housing the school owns or operates.² For off-campus housing, the cap is the school’s cost-of-attendance allowance even if the actual rent is higher. Check that figure with the financial aid office before withdrawing 529 funds to cover rent.

Transportation, health insurance, general living expenses, and fees for athletic or hobby courses unrelated to a degree program do not qualify.

K-12 Tuition

Starting in 2026, up to $20,000 per beneficiary per year can be withdrawn tax-free for tuition at public, private, or religious elementary and secondary schools. The limit was $10,000 for prior years and applies across all 529 plans for the same beneficiary.² Only tuition qualifies at the K-12 level. Books, supplies, transportation, and room and board for K-12 students do not. Some states tax 529 withdrawals used for K-12 tuition or recapture previously claimed state deductions, even though the federal treatment is tax-free.

Student Loans and Apprenticeships

Up to $10,000 in 529 funds can be used over a beneficiary’s lifetime to repay qualified student loans, and each sibling of the beneficiary has a separate $10,000 lifetime limit. The cap applies across all 529 accounts for the same person.²

Fees, textbooks, supplies, and required equipment for a registered apprenticeship program also qualify if the program is certified with the U.S. Department of Labor under the National Apprenticeship Act.

Figuring the Taxable Portion

If your total distributions for the year are less than or equal to qualified expenses, everything is tax-free and nothing goes on your return. Do the math only when distributions exceed expenses.

First, compute adjusted qualified education expenses (AQEE). Start with total qualified expenses, then subtract any tax-free educational assistance the student received: scholarships, fellowship grants, Pell grants, veterans’ education benefits, and employer-provided assistance all reduce AQEE.⁴

When distributions exceed AQEE:

Multiply Box 2 earnings by (AQEE ÷ Box 1 total distributions). That is the tax-free portion of the earnings.
Subtract the tax-free earnings from Box 2. What remains is taxable income.

A worked example. You withdrew $15,000 (Box 1): $5,000 earnings (Box 2) and $10,000 basis (Box 3). Your AQEE for the year is $12,000. Tax-free earnings are $5,000 × ($12,000 ÷ $15,000) = $4,000. Taxable earnings are $5,000 − $4,000 = $1,000. You owe ordinary income tax on $1,000, plus a potential $100 additional tax.⁴

If you received more than one 1099-Q — say from different 529 accounts, or a mix of 529 and Coverdell — combine all the distributions and all the AQEE into one calculation. Do not run the math separately for each form.

The 10% Additional Tax

Taxable earnings from a non-qualified distribution get ordinary income tax plus an additional 10% tax.² The 10% applies only to the taxable earnings, not the entire distribution and not the basis.

Several situations waive the 10% while leaving the earnings subject to regular income tax:

The beneficiary received a tax-free scholarship. You can withdraw up to the scholarship amount penalty-free; the earnings are still taxed as income but skip the extra 10%.
The beneficiary died or became disabled.
The beneficiary attends a U.S. military academy, up to the cost of advanced education there.
You included 529 earnings in income because you allocated the corresponding expenses to an American Opportunity or Lifetime Learning credit.⁵

The scholarship exception is where families lose money without realizing it. If a student receives a $5,000 scholarship, the account owner can pull $5,000 from the 529 for any purpose and owe only income tax on the earnings portion, with no 10% on top.

Don’t Double-Dip With Education Credits

The same dollar of expense cannot support both a tax-free 529 distribution and a federal education credit like the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit.³

If a student has $14,000 in qualified expenses and you claim the AOTC (which uses up to $4,000 of expenses), only $10,000 is left to justify tax-free 529 distributions. Withdraw $14,000 from the 529 and the $4,000 allocated to the credit becomes an excess distribution, with tax on its earnings portion.

The allocation is your decision on the return; the plan administrator knows nothing about it. In most cases, claiming the AOTC and accepting a small amount of taxable 529 earnings comes out ahead, because the AOTC is worth up to $2,500 and is partially refundable. Run both scenarios before filing.

If Box 4b Is Checked: 529-to-Roth Rollovers

Starting in 2024, leftover 529 funds can be rolled into a Roth IRA for the beneficiary. The rollover appears on Form 1099-Q with Box 4b checked.¹

The rules are tight:

The 529 account must have been open at least 15 years. Changing the beneficiary may reset that clock; IRS guidance is still limited.
Only contributions (and their earnings) made more than five years before the rollover date are eligible.
Each year’s rollover cannot exceed the Roth IRA contribution limit for that year ($7,500 for 2026 for someone under 50). Any other Roth contributions the beneficiary makes that year reduce the available rollover dollar for dollar.
Total rollovers for a single beneficiary cannot exceed $35,000, across all 529 accounts.
The 529 beneficiary and the Roth IRA owner must be the same person.
The rollover has to be a direct trustee-to-trustee transfer.²

Because the annual cap tracks the Roth contribution limit, reaching the full $35,000 takes at least five years. The beneficiary also needs earned income at least equal to the rollover amount for the year, same as any Roth contribution.

Reporting It on Your Return

If your distributions were fully covered by qualified expenses, nothing goes on the return. Keep the 1099-Q with your expense records in case the IRS asks.

When there are taxable earnings, report the amount on Schedule 1 (Form 1040), line 8z, as other income, with a description like “529 earnings” or “Coverdell ESA earnings.” That figure flows into total income on Form 1040.⁴

If the 10% additional tax applies, report it on Form 5329, Part II. If a penalty exception applies, you claim it on the same form. Attach Form 5329 to your Form 1040, and the additional tax carries into the “Other Taxes” section.⁵

Do not attach the 1099-Q itself. The IRS already has a copy. Keep it with tuition bills, receipts, and any documentation showing how the funds were spent. The burden of proving expenses were qualified sits with you, not the plan.

1
Internal Revenue Service. Instructions for Form 1099-Q (04/2025)
2
Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs
3
Internal Revenue Service. 529 Plans: Questions and Answers
4
Internal Revenue Service. Publication 970, Tax Benefits for Education
5
Internal Revenue Service. Instructions for Form 5329