The following information is an overview of the IRS 1099Q tax reporting process. Consult the Program Description for complete information about withdrawals and tax reporting.
Only the Participant (account owner) can initiate a withdrawal from a NextGen account. All requests for withdrawals must be submitted on the Withdrawal Request Form. Your NextGen account statement will contain the information needed to complete the Withdrawal Request Form. See the Withdrawal Request Form Instructions.
To withdraw matching grant assets for qualified higher education expenses the account owner must complete a Matching Grant Certification of Withdrawal Form and submit it with the NextGen Withdrawal Request Form
The NextGen plan is required to produce IRS Form 1099-Q "Qualified Tuition Program Payments (Under Section 529 and 530)" in the name of the "distributee". The amount of the gross distribution is reported in Box 1, the earnings portion of the distribution is reported in Box 2 and the basis portion of the distribution is reported in Box 3.
IRS Form 1099-Q will be sent to the account beneficiary if the withdrawal was made directly to the beneficiary or to an eligible educational institution for the benefit of the beneficiary. Otherwise, the Form 1099-Q will be sent to the account owner.
Any portion of the distribution representing the amount contributed to a qualified tuition program rollover or an amount paid for qualified higher education expenses does not have to be reported as income on IRS tax forms.
If a distribution is used for anything other then qualified higher education expenses, the distributee is required to report the earnings portion of the non-qualified distribution to the IRS and a 10% additional tax on those earnings will be due and payable to the IRS. The earnings portion of a non-qualified distribution will also be subject to Maine state income taxes.
Negative earnings will be reported on the Form 1099-Q only if all the funds in the account were withdrawn. Account owners who experience a loss on investment in the NextGen plan can claim the loss on their income tax return, but only when all amounts from the account have been distributed for qualified higher education expenses and the total distributions are less than the unrecovered basis (contributions). Taxpayers claim the loss as a miscellaneous itemized deduction on line 22 of Schedule A (Form 1040), subject to the 2%-of-adjusted-gross-income limit.