Question
1099-Q Distribution to Pay Off Student Loan
Taxpayer established a 529 plan a few years ago for her young child. Taxpayer had outstanding student loans from years ago and did not pay any college tuition in 2024. Taxpayer changed the designated beneficiary from her child to herself, withdrew the 529 funds and used them to pay off her student loan. All of this is allowed under the SECURE Act, as I understand it. The 1099-Q shows a gross distribution of $4,000 and Earnings of $700. ProSeries is showing the $700 of earnings as taxable. Is this correct? I'm thinking none of this is taxable since the entire distribution was used to pay an allowable expense (i.e. student loan). Thanks.
