What Is a 1099-Q Tax Form? Reporting 529 Withdrawals and Rollovers

The 1099-Q tax form reports money withdrawn from a 529 plan or a Coverdell Education Savings Account during the year. Getting one in the mail does not automatically mean you owe tax. It gives you and the IRS the numbers needed to check whether the withdrawal was spent on qualifying education costs, and that comparison is what decides whether any part of it is taxable.

Who Gets a 1099-Q and Why

Any withdrawal from a Section 529 qualified tuition program or a Section 530 Coverdell ESA triggers the form.¹ The plan custodian files it with the IRS and sends a copy to whoever received the money. That could be the account owner, the beneficiary, or the school. The form itself carries no judgment about whether the withdrawal was legitimate; it just reports the numbers.

The name on the form matters. If the check went to the student or straight to the school, the 1099-Q is issued in the beneficiary’s name. If the check went to the account owner, it shows the owner’s name and Social Security number. Any taxable portion of a non-qualified distribution gets reported on the recipient’s return at the recipient’s tax rate. For many families the student has little other income, so keeping the form in the student’s name can mean a smaller tax bill on any earnings that don’t qualify for tax-free treatment. The simplest way to do that is to have distributions sent directly to the school or to the student’s own bank account.

Reading the Three Dollar Boxes

The tax picture lives in three boxes.

Box 1, gross distribution, is the total paid out during the year. It includes both your original contributions and any investment growth, plus the value of tuition credits, payment vouchers, or tuition waivers on a 529 plan.²
Box 2, earnings, is the portion that came from investment gains. This is the only number that can ever be taxable.²
Box 3, basis, is the after-tax money you originally put in. Box 3 equals Box 1 minus Box 2. You already paid tax on that money, so getting it back is never taxable.³

What Counts as a Qualified Expense

The whole point of these accounts is tax-free growth, and you keep that benefit as long as withdrawals go to qualifying costs. What qualifies depends on the account type and the level of education.

College and Graduate School

For higher education, qualified expenses include tuition, enrollment fees, books, supplies, and equipment required for attendance. Computers, software, and internet access count if the student uses them primarily for coursework, though software designed for games or hobbies does not qualify unless it is predominantly educational.⁴ Special needs services connected to enrollment also qualify.

Room and board counts for students enrolled at least half-time, with a ceiling. The qualifying amount cannot exceed the greater of the school’s official cost-of-attendance allowance for housing or the actual amount the school charges students living in its own housing.⁴ If your student rents off-campus, the school’s published cost-of-attendance figure is your limit.

K-12 Tuition

Starting in 2026, 529 plans can cover up to $20,000 per student per year in tuition at elementary and secondary schools, whether public, private, or religious.⁴ That limit doubled from $10,000 under legislation signed in mid-2025. The cap applies per student across all 529 accounts contributing on that student’s behalf, and it covers tuition only. Books, uniforms, and other K-12 costs do not qualify for tax-free 529 withdrawals.

Coverdell ESAs handle K-12 more broadly. They can pay for supplies and equipment as well as tuition at elementary and secondary schools.⁵ If you have both account types, that difference can shape how you split withdrawals.

Apprenticeships and Student Loans

A 529 distribution can pay for fees, books, supplies, and equipment required for a registered apprenticeship program. Up to $10,000 in lifetime distributions can also go toward repaying the principal or interest on the beneficiary’s qualified education loans.⁴ The $10,000 cap is per borrower over a lifetime, not per year, and prior distributions used for the same purpose count against it. Coverdell ESAs cannot be used for student loan repayment.

Putting the Numbers on Your Return

The math is straightforward. Compare your total qualified expenses for the year to the gross distribution in Box 1. If your expenses equal or exceed that number, the whole distribution is tax-free and you generally do not need to report it on Form 1040 at all. Keep receipts, tuition invoices, and housing contracts. That paper trail is the only way to prove the connection if the IRS asks later.

When the distribution exceeds qualified expenses, part of the earnings becomes taxable. Only Box 2 is at risk; your basis in Box 3 always comes back tax-free. The taxable earnings get reported on Schedule 1 of Form 1040 as other income. On top of regular income tax, the IRS adds a 10 percent tax on those taxable earnings as a penalty for using the funds outside their intended purpose.⁶

When the 10 Percent Penalty Does Not Apply

Several situations wipe out the extra 10 percent even when the withdrawal did not go to qualified expenses:

The beneficiary received a tax-free scholarship. You can pull an equal amount from the 529 plan without the penalty. Regular income tax on the earnings portion still applies.
The beneficiary attends a U.S. service academy. Distributions up to the cost of attendance get the same treatment.
The beneficiary dies or becomes disabled.
The distribution is a qualified rollover from a 529 plan to a Roth IRA under the SECURE 2.0 Act rules, which avoids both the penalty and regular income tax.

To claim any of these, report the exception on Form 5329, which calculates additional tax on distributions from tax-favored accounts.⁷ Filing that form is how you tell the IRS why the penalty does not apply.

Options for Leftover 529 Money

If a student finishes school with money still in the account, or does not use it at all, two moves let you avoid a non-qualified distribution and the tax hit that comes with it.

Rolling Funds to a Roth IRA

The SECURE 2.0 Act lets you roll leftover 529 funds into a Roth IRA for the beneficiary, with several restrictions:

The 529 account must have been open for at least 15 years.
Only contributions made at least five years before the rollover date are eligible. Recent deposits do not qualify.
The amount rolled over in any year counts against the beneficiary’s Roth IRA annual contribution limit, which is $7,500 for 2026, or $8,600 if the beneficiary is 50 or older. Any other Roth contributions the beneficiary makes that year reduce the available rollover room.⁸
No more than $35,000 total can ever be rolled from 529 plans to Roth IRAs for a single beneficiary.
The Roth IRA must be in the beneficiary’s name, not the account owner’s.

The income limits that normally restrict Roth IRA contributions do not appear to apply to these rollovers, though the IRS has not yet issued final guidance confirming that. Even at the maximum pace, emptying $35,000 through this channel takes about five years.

Changing the Beneficiary

Switching the beneficiary on a 529 plan to another family member carries no tax consequences and will not generate a taxable 1099-Q.⁹ The IRS defines family broadly here. Eligible new beneficiaries include the current beneficiary’s spouse, children, parents, siblings, stepparents, stepsiblings, nieces, nephews, aunts, uncles, in-laws, the spouses of any of those relatives, and first cousins.⁴ That is a wide enough net that most families can redirect unused funds to someone who will use them rather than take a non-qualified distribution and pay tax on the earnings.

1
Internal Revenue Service. About Form 1099-Q, Payments from Qualified Education Programs (Under Sections 529 and 530)
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Internal Revenue Service. Instructions for Form 1099-Q – Payments From Qualified Education Programs
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Internal Revenue Service. Instructions for Form 1099-Q (04/2025)
4
Office of the Law Revision Counsel. 26 USC 529 – Qualified Tuition Programs
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Office of the Law Revision Counsel. 26 US Code 530 – Coverdell Education Savings Accounts
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Internal Revenue Service. Form 1099-Q – Payments From Qualified Education Programs
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Internal Revenue Service. Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
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Internal Revenue Service. Retirement Topics – IRA Contribution Limits
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Internal Revenue Service. 529 Plans: Questions and Answers