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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16559
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I put $5000 into my daughters 529 plan in Indiana 2010. I

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I put $5000 into my daughter's 529 plan in Indiana 2010. I withdrew $5000 in the same yeasr for my daughter's QTP. Her account is still open. My form 1099Q for 2010 reported earning $137 in box2, box 3 for "Basis" is $4863. IRS asked me to pay for tax for the "$137", but I did not make any money from this plan, how should I reply to IRS?

thank you !
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

The IRS is incorrect. Provided that you withdrew funds from the 529 plan for qualified reasons (and you indicate you withdrew money for a QTP) the earnings are not taxable.

You will respond to the IRS that you withdrew funds for a qualified purpose, and that you do not owe tax on the $137. CLICK HERE

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Customer: replied 4 years ago.


I withdrew the money in same year I made the investment, does that matter?

If it is qualified expense, and you paid the qualified expense the same year as the deduction then you do not owe tax on the 137.

If any portion of your withdraw was not a qualified withdraw, then you would owe tax on the earnings.

The IRS does make mistakes, and since earnings were reported to them, they want you to show that you used the funds for qualified purposes to ensure that you are not taxed on the withdraw.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid, but the Web site will still collect your payment. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site**
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Thank you for the positive rating. Please remember me the next time you have a financial question. Simply enter "MyVirtualCPA" in the subject of your question, and it will be routed directly to me. Thank you again for using JustAnswer