Tracks withdrawals from qualified education savings programs.

Key Components:

• Gross distribution amount (Box 1)
• Earnings portion (Box 2) - potentially taxable
• Basis/contributions portion (Box 3) - always tax-free
• Account type indicator (529 plan or Coverdell ESA)

• Beneficiaries or account owners taking distributions
• Students receiving education expense payments
• Those transferring between 529 plans
• Families making K-12 tuition payments (up to $10,000/year)
• Recipients of student loan repayments (lifetime $10,000 limit)

• Qualified distributions: Tax-free when used for approved expenses
• Nonqualified distributions: Earnings subject to income tax + 10% penalty
• Special rules for scholarships and K-12 expenses
• Coordination required with American Opportunity/Lifetime Learning credits
• Rollovers to Roth IRAs now permitted under SECURE 2.0 Act

Filing requirements:

• Compare distributions to qualified education expenses
• Report taxable earnings on Form 1040 (Line 8b if nonqualified)
• File Form 5329 for any applicable penalties
• Maintain documentation showing expense eligibility
• Coordinate with Form 1098-T from educational institution

• Keep detailed records of all education expenses (tuition, fees, books, etc.)
• Understand qualified vs. nonqualified expenses
• Time distributions to match expense payments
• Consider impact on financial aid eligibility
• Explore new Roth IRA rollover options for unused funds

• Form 1098-T (Tuition Statement)
• Form 5329 (Additional Taxes on Qualified Plans)
• Form 1040 (Individual Tax Return)
• Form 8863 (Education Credits)
• Institution billing statements