Distributions from Coverdell Education Savings Accounts (ESAs)
IRS Form 1099-Q: What is it and why am I receiving it?
IRS Form 1099-Q is used to report all distribution activity from a Coverdell ESA. This includes routine distributions, trustee-to-trustee transfers, in-kind transfers between qualified education programs and removals of excess contributions plus earnings.
What about tax withholding?
Tax withholding is not assessed on distributions from Coverdell ESAs. We no longer process withholding on distributions, as IRS Form 1099-Q does not contain a box to report Federal tax withholding. Distributions that are not used to pay for qualified education expenses are generally included in gross income. They may also be subject to additional tax of 10%. Contributions in excess of IRS limits may be subject to a 6% excise tax.
What is basis, and will basis information be reported on my Form 1099-Q?
Basis equals contributions, in dollars, made to each Coverdell ESA account. At this time, the IRS does not require trustees of Coverdell ESAs to identify and report basis and earnings. Therefore, we do not track or report basis and earnings on IRS Form 1099-Q. However, if you removed an excess contribution, any applicable earnings must be reported in box 2.
How do I determine the basis and earnings of my distribution?
To determine the basis and earnings of your distribution, please refer to the Coverdell ESA-Taxable Withdrawals and Basis worksheet in IRS Publication 970, Tax Benefits for Education. Generally, amounts distributed are included in gross income unless they are used to pay for qualified education expenses, transferred between trustees or rolled over to another qualified education program within 60 days. Refer to the instructions for IRS Form 1040 and IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts on how to report this income. Refer to your annual statements for account details. If you have additional questions, please contact your tax advisor.
What is a trustee-to-trustee transfer or a transfer in kind?
A trustee-to-trustee transfer is the transfer of assets from one financial institution to another financial institution. A transfer in kind is the transfer of assets from one trustee to another trustee within the same financial institution. Both trustee-to-trustee transfers and transfers in kind are reportable, but are not considered taxable events for Coverdell ESA accounts.
What is contained in the message box?
The message box below box 5 on IRS Form 1099-Q contains important information such as: The Fair Market Value (FMV) of the account as of 12/31 (if there is no FMV, zero (0) will be shown), the IRS distribution code, and whether earnings from excess contributions are reported in box 2.
What are the distribution codes?
To help you determine the type of distribution that you received, distribution codes will be shown in the message box below box 5. Multiple distributions will be netted by distribution code type, and reported on a separate IRS Form 1099-Q.
Internal Revenue Service
IRS representatives are available year-round to answer questions. You may reach them by calling 1.800.829.1040 during normal business hours in your time zone. If you prefer to speak with someone in person, you can visit your local IRS office.
The IRS also provides free publications on various subjects, including:
- IRS Publication 970, Tax Benefits for Education
- IRS Form 5329, Additional Taxes on Qualified Plans, (Including IRAs) and other Tax Favored Accounts
You can order any of these publications by calling 1.800.829.3676 or review and download information and publications at the IRS website, www.irs.gov.
Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.
Before investing in any of the Oppenheimer funds, investors should carefully consider a fund's investment objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com, or calling 1.800.CALL OPP (225.5677). Read prospectuses and summary prospectuses carefully before investing.
Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc.
Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008